In the government's 2018/19 (July-June) budget approved by parliament in September, Finance Minister Henry Rotich set a net external financing target of 287 billion shillings ($2.83 billion) to partly cover the deficit.

"They want to assess whether it would be cheaper to borrow in euros or dollars. A number of banks submitted their interest last week, their technical capabilities," the source told Reuters.

There has been an increase in government borrowing since President Uhuru Kenyatta came to power in 2013 - a rise that has angered some opposition politicians who say it is saddling future generations with debt.

($1 = 101.5300 Kenyan shillings)

(Reporting by Duncan Miriri; Editing by Andrew Heavens)