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Kenya battles huge budget deficit to boost economic recovery

Kenyan Finance Minister Uhuru Kenyatta, managed to craft near-trillion shilling budget (US$ 12 billion), giving priority to infrastructure projects and targeting reducing local government borrowing to spur economic recovery efforts.

Kenyatta ordered a crackdown against tax evasion, saying locally licensed forex bureaus were aiding firms and individuals to evade taxes.

The government’s tax revenues dropped by Ksh50 billion (US$ 60 million), while the government’s expenditure shot up by an extra Ksh110 billion (US $ 134.5 million).

The minister attributed the drastic drop from government revenues on the effects of the global economic crisis, as the government collected Ksh568.9 billion during the current financial year.

In the financial year 2010/11, which starts in July, Kenyan officials hope to collect Ksh. 688.5 billion, which is equal to 24.9 per cent of the country’s total wealth, the GDP.

A third of this year’s budget would be used for development financing, totaling Ksh321 billion out of the total budget of Ksh997 billion.

Kenya’s economy is expected to battle a huge budget deficit of Ksh188 billion, a massive 6.8 per cent of the Gross Domestic Product.

The government hopes to borrow Ksh82 billion from the international markets and 105 billion from the local financial markets.

Kenyatta said the ballooning budget was meant to finance key infrastructural development projects, expected to keep the economy growing in 2010/11.

Kenya’s economy slide into a near recession following the 2008 post- election violence, which cut growth from seven per cent in 2007 to 1.6 per cent in 2008.

The economy is expected to hit 4.5 per cent in 2010, following its recovery in 2009 and could grow by 5.7 per cent in 2011

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