Kenya turmoil may cost economy $1 bln: finmin

NAIROBI (Reuters) - Kenya's post-election violence may have cost the economy up to $1 billion but it could be recovered within a year, Finance Minister Amos Kimunya said on Tuesday.

"It's an estimate of the slowdown in the economy because of loss of production. My estimate was about $1 billion may have been lost," Kimunya told Reuters in an interview.

He said the estimate did not factor in destruction by looters who went on the rampage when President Mwai Kibaki was pronounced the winner of the December 27 vote, but did take into account two extra election-related public holidays.

"I expect whether it's within the next couple of months or within a year ... that people will be able to recoup all that," Kimunya said.

Three days after the election Kenya's business community said the government was losing 2 billion shillings ($30.42 million) worth of taxes daily due to the unrest.

But there has been a gradual return to normality in east Africa's biggest economy with currency and stock markets reporting higher volumes as trade resumed in earnest this week.

The weekly tea auction, which serves Burundi, Uganda and Tanzania among others, resumed on Monday after being postponed.

Kimunya later told a news conference the economy was forecast to grow by about 7 percent in 2008, similar to growth estimates for the previous year -- but slightly lower than the central bank's projection of 8 percent growth this year.

Official growth figures for 2007 have yet to be released.

Kimunya said meeting the targets would depend on a speedy recovery.

"We are encouraged that Kenyans are actively bringing to an end the recent unrest and the growth forecast ... may not be significantly affected," he told the news conference.

Affected sectors include tourism, transport, telecoms, agriculture, manufacturing and the financial sector, he added.

Last week, the World Bank and other donors voiced concerns the turmoil could threaten Kenya's impressive economic gains and harm regional economies that depend on it as a business hub.

INFLATION CONCERNS

Kimunya noted concerns about rising inflation after days of violence choked supplies of fuel and basic commodities. But he said inflation would be affected by higher global oil prices and increased security costs.

"Obviously those will have some impact on the cost of living index. It's nothing that we cannot control," he said.

Kimunya said emergency government relief to the hundreds of thousands of people uprooted by the unrest would not greatly affect its budget deficit, put at 109.8 billion shillings in the 2007/08 (July-June) fiscal year, thanks to extra revenues.

"Fortunately we have also had some windfalls. For example we sold Telkom Kenya for much more than we expected," he said.

In December a consortium led by France Telecom paid $390 million for a 51 percent stake in Telkom Kenya. The government had a reserve price of $300 million.

Kimunya said higher tax revenue collections would also help cushion the extra spending, while plans for a $300 million Eurobond early this year will boost infrastructure projects.

Kimunya said the government was working with its advisors on how to best boost confidence in the bond issue following the bloodshed which has tarnished Kenya's reputation for being one of Africa's most stable democracies and promising economies.

"Once we rebuild that confidence the fundamentals are still there and we should be able to issue the bond."

(Editing by Katie Nguyen, David Christian-Edwards)