Treasury CS Ukur Yatani has revealed government plans to do away with the fuel subsidy programme, which will exponentially increase fuel prices at the pump.
In a statement on Wednesday, June 15, 2022, Yatani said that that programme could soon be unsustainable due to the soaring global prices attributed to the Russia-Ukraine war.
“The cost of the fuel subsidy could eventually surpass its allocation in the National Budget, thus potentially escalating public debt to unsustainable levels and disrupting the Government’s plans to reduce the rate of debt accumulation. For this reason, a gradual adjustment in domestic fuel prices will be necessary in order to progressively eliminate the need for the fuel subsidy, possibly within the next financial year,” Yatani said.
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“Fuel subsidies are inefficient and often lead to misallocation of resources and crowding out of public spending on productive sectors, resulting in unintended consequences such as disproportionately benefiting the well-off. Additionally, scenario analysis suggests that fuel prices could increase further, but even if they do not, they are not expected to revert to levels experienced prior to the Russia-Ukraine War.”
On Tuesday, the Energy and Petroleum Regulatory Authority (EPRA) announced an increase in fuel prices by Ksh9, putting the price of super petrol, diesel and kerosene at Ksh159.12, Ksh140 and Ksh127.94 per litre respectively in Nairobi.
According to EPRA, the actual calculated pump prices would have been Ksh184.68 for super petrol, Ksh188.19 for diesel and Ksh170.37 for kerosene, were it not for the subsidy programme.
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The government has allocated over Ksh100 billion, in the Financial Year 2021/22 and 2022/23 to subsidize fuel prices.
“From the onset of the Russia-Ukraine War, there has been elevated volatility and uncertainty in the international oil markets given that Russia is the third-largest oil exporter in the world, commanding 11 percent of the global market share. This has resulted in significant increases in fuel prices in recent months to levels not seen since 2008, with an increase of more than 50 percent between December 2021 and May 2022, thus gravely impacting the cost of living.
Currently, fuel accounts for 20 percent of Kenya’s import bill. Yatani says the volatile international oil prices thus expose Kenya’s open economy to the risk of imported inflation.
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