* Plans to issue up to 3 bln dinars in international bonds, sukuk

* Eyes borrowing up to 2 bln dinars in domestic markets

* Forecast budget deficit for 2016/17 of 9.5 bln dinars

(Adds quote, forecast detail, context)

KUWAIT, July 3 (Reuters) - Kuwait plans to issue up to 3 billion dinars ($10 billion) in U.S. dollar-denominated bonds and sukuk in international markets to help plug its budget deficit for the current 2016-17 fiscal year, the finance minister said on Sunday.

It will also borrow up to 2 billion dinars in debt from the domestic market in conventional and Islamic instruments, said Anas al-Saleh, who is also deputy prime minister and acting oil minister, according to an emailed speech.

Like other Gulf Arab states, Kuwait is turning to debt capital markets to raise money as oil prices remain at below half the levels they were at two years ago. Qatar in May sold $9 billion of eurobonds, while Saudi Arabia is talking to banks about a debut international bond issue.

The remainder of Kuwait's expected 9.5 billion dinar budget deficit for the current fiscal year, which began on April 1, will be covered by drawing down funds from the general reserve, al-Saleh said.

The forecast deficit was after a deduction for the Future Generation Fund, a nest egg for when oil supplies diminish.

"Most of the available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required (for) attaining a balanced budget," said al-Saleh.

For the 2015 to 2016 fiscal year, the government posted a budget deficit of 5.5 billion dinars, lower than the 8.2 billion dinars it had previously forecast, he said.

That was because of higher production of oil and efforts to reduce current spending. Still, the government was committed to funding capital projects tied to the national development plan and mega infrastructure schemes, he said.

For the current fiscal year the budget was based on an average oil price of $35 per barrel, lower than the benchmark for the previous year of $45.

The ministry of finance was preparing a public debt strategy for the coming five years to cover the government's financing needs.

The strategy included setting up a special unit to manage public debt within the ministry. It would work in cooperation with Kuwait Investment Authority, the sovereign wealth fund, and the central bank, he said. ($1 = 0.3016 Kuwaiti dinars)

(Reporting by Ahmed Hagagy; Writing by Tom Arnold; Editing by David French and Elaine Hardcastle) ((Tom.Arnold@thomsonreuters.com; +97144536265; Reuters Messaging: tom.arnold.thomsonreuters.com@reuters.net))