Kenya's government expects its economy to expand by 5.6 percent this year, up from about 5 percent in 2012, with growth rising to 6 percent in the medium term, the finance ministry said.

It cited growth in the agriculture sector, which was likely to increase output due to favourable weather, as well as infrastructure projects in transport and energy.

Growing exports to neighbouring countries whose economies are booming and higher consumer demand at home on the back of falling inflation could also boost growth, it said in a Budget Policy Statement seen by Reuters on Tuesday.

Year-on-year inflation, which fell to 3.2 percent last month, was expected to hover at around the government's target of 5 percent over the next few months, barring sudden jumps in prices of oil and other commodities.

The Treasury projected that the current account deficit, which widened to over 10 percent of GDP last year due to growth in imports, would narrow to 5.4 percent by 2015/16 fiscal year.

The budget deficit was set at 4.3 percent of GDP, down from 6.5 percent in this fiscal year. The government uses the Policy statement as a guide for the budget, which will be presented to parliament in June. - Reuters