Turkana boys walk past a road construction project near Isiolo town
Turkana boys walk past a road construction project near Isiolo town, about 320 km (200 miles) north of Kenyan capital Nairobi, July 7, 2008. REUTERS

The World Bank will consider loaning Kenya $400 million before the end of the fiscal year to upgrade informal settlements and road projects, the bank's head in Nairobi said on Thursday.

Since March 2009, the bank's board has approved about $1.1 billion of new lending to Kenya, country director Johannes Zutt said.

We continue to be a large financier in Kenya, he told Reuters. For the remainder of this fiscal year, we will be presenting to our board two more projects amounting to approximately $400 million.

Zutt said the World Bank recognised that the Kenyan Treasury had done a fine job of managing its debt burden since 2000.

In 2000, Kenya's debt was equal to 60 percent of gross domestic product (GDP) but by 2007 this had been brought down to 40 percent, Zutt said.

That is an amazing reduction in a short period of time and it was done without debt relief, he said.

Kenya's debt now stands below 45 percent of gdp, according to the central bank.

East Africa's largest economy had been in a position to initiate a stimulus because it had managed its debt well, Zutt said, adding that the World Bank now expected Kenya's debt to return to more sustainable levels.

It was always recognised on the part of the ministry of finance that fiscal stimulus would be withdrawn once it was no longer needed and that the ministry would resume the level of fiscal discipline required to bring the debt levels back down to the target of 40-42 percent, Zutt said.

We anticipate that will happen going forward.

Kenya set aside 48 billion shillings for an economic stimulus initiated in the 2009/10 fiscal year but used up only 16 billion, according to government statistics.

In the end, the amount of money Kenya spent on fiscal stimulus was a little bit less than we expected it would be, Zutt said.

The fact that the economy was growing again -- at a forecasted 5.6-5.7 percent this year from 5.0 percent last year -- would help to improve revenues and ensure government spending did not require more debt financing.

Kenya's targets domestic borrowing of at least 120 billion shillings by the end of the fiscal year in June, absorbing 54.5 billion of that in the first half.