UPDATE 2-Kenya exerts heavy budgetary toll to prop up economic growth

(Adds comments by finance minister, budget details, reaction, rewrites throughout)

NAIROBI, June 10 (Reuters) – Kenya’s finance minister cut the budget deficit lightly on Thursday as he splurged on infrastructure projects and a stimulus effort to boost economic growth in the face of the coronavirus crisis.

The East African nation projects its economy will expand by 6.6% this year, Finance Minister Ukur Yatani told lawmakers, while presenting budget proposals for the 2021/22 (July-June) fiscal year.

That robust growth will outpace the projected global rate and that of Sub-Saharan Africa, but it will come at a huge cost – a third of the entire budget will be plugged by deficit financing.

“This budget required a lot of balancing … considering the prevailing weak business environment,” Yatani said.

At 7.5% of GDP, the deficit is far higher than the 3% recommended by the six-nation East African Community, in which Kenya is a key member, and it has even been criticised by the government-controlled budget committee in parliament.

Growth plummeted to 0.6% last year, Yatani said, as key sectors like tourism and related services collapsed at the onset of the coronavirus crisis.

Recovery has started this year but the pace could be curbed by lack of COVID-19 vaccines and a surge of infections in some parts of the country, said Nikhil Hira, director at Nairobi law firm Bowmans.

“We are trying to finance a budget through tax revenues that are not there,” he told Reuters.

To maintain growth, Yatani boosted spending on infrastructure projects like roads, and allocated cash to an economic intervention program that offers manual work to thousands of jobless youths affected by the pandemic.

Further funds were designated for a raft of signature projects initiated by President Uhuru Kenyatta in his legacy development program dubbed “The Big 4 Agenda,” ahead of his retirement after an election next year.

Kenyatta, who took the helm in 2013, has presided over a rapid increase in public borrowing. Total debt stands at 70% of GDP, up from about 45% when he took over.

The government has to raise its debt ceiling of 9.0 trillion shillings ($83.49 billion) in the next financial year, the Treasury says, after raising it again in late 2019.

The ramp-up in borrowing has angered Kenyans.

“It is ridiculous,” Aden Duale, a government lawmaker turned critic, said on Citizen TV, urging authorities to ditch expensive loans from lenders like China, and try to live within their means. ($1 = 107.8000 Kenyan shillings)

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