(Corrects spelling of IMF representative's surname to Gudmundsson)
* Economy to expand by 5.5-6 pct this year
* Private sector credit growth supportive
* Current account deficit to shrink in 2014/15
By Duncan Miriri
NAIROBI, March 13 (Reuters) - Kenya plans to begin marketing its debut Eurobond at the end of this month, and investor interest in the issue appears strong, the International Monetary Fund said on Thursday.
Kenya expects to borrow up to $2 billion from international markets to refinance an existing syndicated loan of $600 million and to fund the construction of infrastructure projects.
"It is still the objective of the Kenyan authorities to conduct a roadshow, most likely towards the end of March or in April 2014," Ragnar Gudmundsson, the IMF's resident representative in Kenya, told Reuters in an interview.
There were indications of considerable interest in the issue, he said, in spite of market volatility set off when the United States decided to wind down its economic stimulus.
"The yields for countries like Kenya are still likely to be attractive, especially when you compare with the cost of borrowing on the domestic market," Gudmundsson said.
The IMF expects the Kenyan economy, east Africa's largest, to expand by 5.5-6 percent this year, compared with an estimated 5.1 percent in 2013. Good weather and increased lending to the private sector are expected to boost growth.
Credit to the private sector is growing 20 percent a year, the central bank said, up from about 10 percent in 2012, after Kenya's central bank raised rates to combat inflation.
"This rate of growth in credit to the private sector is compatible with a pick-up in economic activities without creating undue inflationary pressure," Gudmundsson said.
The central bank is likely to maintain a cautious monetary stance until towards the end of the year, when inflation is projected to fall to its 5 percent target, from 6.86 percent last month.
"If they do see that the downward inflation trends are confirmed, then they may consider some relaxation of the monetary policy stance," he said, adding that the central bank will also bear in mind the credit growth rate.
The IMF expects Kenya's current account deficit to narrow to 7.7 percent of GDP by June 2015, the end of the next fiscal year, from 8.3 percent this fiscal year. Gudmundsson credited government efforts to better capture data related to the current account, such as foreign investment and export of services.
Kenya is also rebasing its gross domestic product to take into account emerging sectors like oil and gas, which is likely to lead to an increase in estimates of the economy's size. The exercise will be completed by the end of May this year.
However, rising public-sector wages threaten to crowd out spending on development, set at a minimum of 30 percent of the revenues per year. Kenya spends 54 percent of annual revenues on wages, against a global benchmark of about 35 percent. Salaries are expected to jump to 64 percent of annual revenues in the next three years.
"It is clearly not sustainable if the government wants to create sufficient space to finance development priorities," Gudmundsson said. (Editing by Drazen Jorgic, Larry King)