Nairobi — The National Treasury is seeking a gradual adjustment in fuel prices so as to eliminate the fuel subsidy which has been cushioning Kenyans from otherwise high fuel prices amidst increased global oil prices.
The exchequer, in a statement released on Wednesday, noted that the subsidies are inefficient and often lead to misallocation of resources and crowding out of public spending 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,” Treasury CS Ukur Yatani said in the statement.
The government rolled out the fuel subsidy program in October 2021 and has spent Sh100billion to cushion Kenyans according to Yatani.
In the latest Energy and Petroleum Regulatory (EPRA) price review published on Tuesday, the cost of fuel went up by Sh9 a liter, with a litre of petrol retailing at Sh159.12; diesel at Sh140.0 and kerosene Sh127.94.
Without the fuel subsidy, petrol would have retailed at Sh184.68, diesel Sh188.19 while kerosene would have retailed Sh170.37.
Further, Treasury noted that 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,” said Yatani.
In scrapping the subsidy, Treasury intends to create fiscal space necessary for the Government to support targeted public spending on productive sectors such as fertiliser subsidies, universal health coverage and subsidized primary and secondary education, among others.
Treasury’s plea mirrors concerns from the World bank that the issuance of fuel subsidies to oil dealers are putting a strain on the Government’s expenses.
While it did not propose any interventions to rid the subsidies, World Bank said, “fuel subsidies are hindering the fiscal performance which benefitted from strong economic recovery aided by the improved service sector and increased revenue.”