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Kenya's Finance Minister Uhuru Kenyatta (2nd L) walks with other finance officials to Parliament building from his office in Kenya's capital Nairobi June 8, 2011. REUTERS/Noor Khamis (KENYA - Tags: BUSINESS POLITICS)Noor Khamis /Reuters/Reuters

Kenya will not issue foreign bonds to bridge its fiscal deficit in 2011/12 because it has already secured the funds from a range of multilateral and bilateral donors, a senior Treasury official said on Thursday.

Finance Minister Uhuru Kenyatta said in his budget on Wednesday that the government will rely on net foreign financing of 116.7-billion shillings ($1.33 billion U.S.) to partly bridge a deficit of 236.2-billion shillings or 7.4 per cent of GDP.

"We haven't programmed any borrowing like that ... This is money that we already have negotiated, signed agreements with our multilateral and bilateral lenders," Joseph Kinyua, permanent secretary -- the top official -- at the ministry of finance told Reuters.

"It is not money that we expect to be looking for. It's money that we have already signed for."

The bulk of the funds will be from The World Bank and the African Development Bank, whose loans will be on concessionary terms of half a percentage point, repayable over 30-40 years after a grace period of 10 years, Mr. Kinyua said.

Other funders include Japanese, French and German development agencies.

"Our strategy is, as much as possible, to use those resources that are cheaper so that we can be able to ensure the resources we are using to service the debts can become available to support other development programs," he said.

Interest repayments on local borrowing will amount to almost 70-billion shillings in the fiscal year ending this month, while interest on foreign debt of a similar amount will be 8-billion shillings, Mr.Kinyua added.

The east African nation of 39-million people plans to issue a debut Eurobond to raise $500- million in the fiscal year 2012/13, Mr.Kinyua said.

"For the Eurobond, we intend to work on that in the course of the financial year. We would want to borrow but against clear projects particularly in the area of infrastructure that have been identified," he said by telephone.

"That is when we believe that we can come to the market. It is very easy to get into the market but if you don't have the projects you will be making a mistake."

Officials hope a raft of political reforms ushered in by a constitution enacted last August will increase the country's debt rating and help it to borrow at a cheaper rate.

"If we go through 2012 elections peacefully that will put us on a very good score and that will make us, Kenya, be able to borrow at very good terms," Mr.Kinyua said.

The jump in net foreign financing in the budget -- from 82.7-billion shillings -- had raised concerns in some quarters about the government's ability to raise the funds at a time when the shilling currency [1 KES = 0.01 U.S.]is plumbing record depths against the dollar.

"We would want the shilling, even if it is moving in either direction, to move in a manner which is not so dramatic," Mr.Kinyua said.

Central bank has began raised its rate by 25 basis points last year and has been mopping up liquidity from the market through repurchase agreements, to tame inflation and curb the exchange volatility.

"If the shilling were to remain around between 80.00-85.00, fluctuating around that level, I'm double sure that both the importers and exporters would be better cushioned. We don't want too strong a currency."

Underlining the heavy cost to the government of paying for day-to-day operations and financing massive infrastructure investment, yields at a 364-day Treasury bill auction on Wednesday jumped to 10.25 per cent from 6.77 per cent in May.

"It is instructive to note that major investors in this market have pushed the rates to levels that make domestic debt expensive. The government therefore cannot contract debt at such levels," the central bank said in a statement.

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