The east African nation has discovered huge amounts of gas which it is banking on to ramp up domestic power generation and end chronic power shortages that have curbed economic growth.

"The deficit is projected to narrow to about 14 percent of GDP in 2013/14 and decline further in subsequent years, as domestic gas powered electricity generation leads to lower demand for imported petroleum fuels," the government said in a letter to the International Monetary Fund dated Dec. 19.

The letter was made public by the IMF late on Tuesday.

East Africa's second biggest economy was on track to expand 6.7 percent in the fiscal year in June while inflation was on course to fall to single digits by mid-year, the government said.

Data this week showed headline inflation at 12.1 percent in December, two percentage points above the central bank's target of 10 percent for the end of 2012.

This year's budget is expected to slow but not fully halt the upward trend in the public debt to GDP ratio.

In the letter, the finance minister and central bank governor said the rise in the debt ratio to 43 percent of GDP at end-June 2012 from 39 percent a year earlier, largely reflecting borrowing equivalent to 2.7 percent of GDP to finance a new gas pipeline.