By Helen Nyambura-Mwaura NAIROBI (Reuters) - Kenya must borrow heavily in the coming months to keep its economy afloat and should use the money for investment not public sector wages, analysts said. In his June budget, Finance Minister Uhuru Kenyatta raised development spending by 82.6 percent to 258.9 billion shillings and said he would borrow 109.5 billion from domestic markets. "The shift by the government towards greater borrowing is out of necessity rather than choice," said Simon Freemantle, economist at CFC Stanbic Bank. Once the global economy stabilises and Kenyan companies operate at optimal levels again, the government is likely to reduce reliance on external funds, he said. But for now, Kenya's economy is technically in recession. Growth figures released on Wednesday showed that on a seasonally adjusted basis, Kenya's economy contracted in the fourth quarter of 2008 and the first three months of 2009 -- the first time that has happened since 2002. Growth in 2008 slumped to 1.7 percent from 7.1 in 2007. Another analyst said borrowing was appropriate as long as it was within the next 18 months, stuck within government plans and was used on projects rather than recurrent expenditure. "The plan the finance ministry has announced is very sensible but we have to see if the implementation is sensible. In the past, implementation has sometimes been very poor," said Richard Segal, London-based economist at UBA Capital. MARKETS RELAXED Kenya's financial markets are relaxed, at least, about the government borrowing and think they can also cope with lending to corporates too. At least four firms, Safaricom, Kenya Electricity Generating Company, Centum and CFC Stanbic Bank, hope to raise some 34 billion shillings in 2009. Kenyatta sees total public debt rising to 44.5 percent of gross domestic product in 2009/10 from about 40 percent in the previous year and the budget deficit at 6.6 percent of GDP. "Options for raising economic stimuli resources externally are limited," said Margaret Chemengich, chief executive at the Institute of Economic Affairs. "However ... the Kenya government intends to take the positive policy approach to sustain economic activities." With a gross domestic product of about $35 billion, Kenya is the region's economic powerhouse. Economic activity was set back by a post-election crisis in 2008, a crippling drought and the fallout from the global meltdown. "I think the government is entirely sensible to borrow given this landscape," said Aly Khan Satchu, an independent analyst. "The government's debt to GDP ratio is relatively well contained at the 'maastricht' type levels and if that was good enough for the Europeans it is good enough for me," he said, referring the E.U.'s debt-to-GDP ratio for members. The European Union requires members' public debt must not exceed 60 percent of GDP. | 
