UPDATE 2-Kenya seeks grip on fiscal consolidation as spending pressure mounts

The government plans to fill the budget gap of 4.9% of GDP, compared with 4.8% this fiscal year, with net external financing of 241.8 billion shillings ($1.86 billion), Kiptoo said, and net domestic financing of 775.8 billion shillings. Officials are grappling with demands for increased expenditure, mainly due to the hiring of thousands of new teachers and the need to adequately fund other critical services like health and security.

Kenya will keep its budget deficit for the fiscal year starting in July broadly in line with its current target, the Finance Ministry said on Wednesday, as it seeks to keep a lid on borrowing in spite of growing spending demands. The East African nation has been struggling with heavy debt repayments in recent years after it ramped up borrowing to fund infrastructure projects, forcing the government to try to maintain a fiscal consolidation path.

"We really need to focus on fiscal sustainability," Chris Kiptoo, the principal secretary at the Ministry of Finance, told a budget preparation event. LONG BUDGET PROCESS

Kenya's constitution demands a lengthy budget-making process to infuse transparency, involving numerous sessions between the Treasury, the public and lawmakers over several months, culminating in a presentation to Parliament in June. The government plans to fill the budget gap of 4.9% of GDP, compared with 4.8% this fiscal year, with net external financing of 241.8 billion shillings ($1.86 billion), Kiptoo said, and net domestic financing of 775.8 billion shillings.

Officials are grappling with demands for increased expenditure, mainly due to the hiring of thousands of new teachers and the need to adequately fund other critical services like health and security. The government's efforts to secure additional resources through a new financial support programme from the International Monetary Fund have been

delayed by a disagreement on how to classify securitised loans.

DRIVE TO CURB GRAFT, WASTAGE OF PUBLIC FUNDS Finance Minister John Mbadi said, however, that the government has made significant progress in the management of debt.

"There was anxiety in government a number of times as to whether we were going to meet our debt obligations," he said. "We are not anymore thinking about whether we will be able to service our debt because that is not the question anymore. The question now is, how then do we reduce our debt service cost?"

He urged government departments and agencies to embrace financial reforms like the introduction of an electronic procurement system aimed at curbing graft and wastage of public cash. ($1 = 129.7500 Kenyan shillings)

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