Kenya will agree a $600 million loan from China to help fund a budget deficit in the fiscal year starting last July, a senior Treasury official said on Friday.

East Africa's top economy is targeting a budget deficit of 6.9 per cent of GDP in the 2016/17 fiscal year (July-June), compared with a revised 8.1 per cent this year, the Ministry of Finance said in February.

"We are in the process now of finalising the financing agreement. We expect very shortly the funds will be coming in," Kamau Thugge, the principal secretary, or number two official, at the Finance ministry, told Reuters.

"It is part of financing the deficit."

Kenya's government had factored in external funding when it presented its budget to parliament in June last year. It borrowed $750 million through a syndicated loan in October.

Thugge said the loan from China, whose terms will be unveiled at a later date, will help the government reduce local borrowing so as not to crowd out private firms.

"That external financing is also part of us reducing our borrowing in the domestic market. Therefore we expect pressures on domestic interest rates to also come down once we get that money," he said.

Patrick Njoroge, the governor of the Central Bank, said on Wednesday that commercial lending rates were too high and needed to come down.