By Duncan Miriri and George Obulutsa

NAIROBI (Reuters) -Kenya’s finance minister on Thursday said the government will pay all debts when they fall due, and cut the budget deficit for the fiscal year starting next month to 4.4% from an estimated 5.8% in this financial year.

In a budget speech that was briefly interrupted by the walk-out of more than a dozen lawmakers from the opposition coalition, Njuguna Ndung’u said the global shocks had increased the risks associated with debt.

“Although the debt burden has risen … The government is committed to honour all public debt obligations as they fall due,” he said.

The East African nation’s total public debt stands at 67% of GDP according to the World Bank, which together with the International Monetary Fund rates the debt as being at a high risk of distress.

Ndung’u set the total government expenditure for the year at 3.7 trillion shillings ($26.5 billion), which parliament’s budget committee said represented a lower increase on the previous year when compared with the historical average.

“We have moderated our spending to ensure value for money,” the minister said.

The opposition has rejected a raft of tax hikes proposed by President William Ruto’s government, which argues that the pain is necessary to stabilise government finances in the face of growing debt repayments.

The opposition lawmakers who walked out of the budget speech left while shouting, prompting Speaker Moses Wetangula to call out “Order! Order”.

FISCAL DISCIPLINE

Growth is expected to rebound to 5.5% this year, Ndung’u said, after a severe drought and other shocks curbed economic activity last year.

Ruto, who was elected last August on a platform of helping the poor, has vowed to entrench fiscal discipline, including shunning a rapid accumulation of debt.

But his maiden budget has run into stiff resistance after his government moved to double the tax on petroleum products to 16%, introduce a new housing tax of 1.5% for every employee and impose a tax on digital content creators.

“This is the most controversial finance bill I have ever seen,” said Junet Mohamed, the opposition chief whip in the national assembly, and an 11-year veteran of the house, referring to a draft law that accompanies the budget.

The bill sailed through its second reading late on Wednesday and lawmakers are expected to hold a final vote on every provision next week.

The budget also comes against a backdrop of slowing economic activity, persistently high costs of basic commodities like maize flour and a slower than expected revenue collection pace.

“Given this, one would expect a reduction in expenditure, but it is set to increase,” said Nikhil Hira, partner at Kody Africa LLP, a Nairobi-based tax advisory.

($1 = 139.8000 Kenyan shillings)

(Reporting by Duncan Miriri and George Obulutsa; Editing by James Macharia Chege, Kirsten Donovan and Emelia Sithole-Matarise)

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