The Auditor General’s Office is expected to publish a comprehensive audit on Kenya’s fuel subsidy status by the end of this month as part of a budgetary support deal the country has with the International Monetary Fund (IMF).
This is one of the IMF’s structural benchmarks, or reform measures used by the multilateral financier to assess the progress of the programme. The IMF gave Kenya a deadline of January 2025 to put this reform measure in place.
It wants the audit report to highlight parameters the State will rely on to give subsidies emphasising that only resources available should be used to cushion consumers.
In its multi-year programme with Kenya, the IMF has identified non-budgeted spending on fuel subsidies as one of the country's fiscal risks.
The global lender fears that such emergency spending is likely to aggravate runaway expenditure that has pushed the country into the high-debt-distress zone.
Only funds available in the Petroleum Development Levy Fund (PDLF), or the Fuel Stabilisation Fund, will be used to cushion Kenyans against fuel hikes. PDLF is built from monthly deductions of consumers charged at the rate of Sh5.40 per litre.
Kenyan authorities assured the IMF that going forward the government would only offer subsidies when money in the kitty is available.
“[To] ringfence the resources budgeted for price stabilisation purposes, the Auditor General’s Office will conduct and publish a comprehensive audit of the fuel pricing mechanism and recommend actions to strengthen the design of triggers for price stabilisation decisions,” the Kenya told the IMF.
When deciding to stabilise fuel prices, State officials said they will not only be guided by landing cost of refined petroleum, exchange rate seesaws, and margins of the oil marketing companies, “but also of resources concurrently available in the Petroleum Development Fund (PDF) for stabilisation purposes and its role in financing development projects.”
Auditor General Nancy Gathungu called out the former administration of President Uhuru Kenyatta for using money from the PDLF to build roads, forcing it to resort to the exchequer to shield consumers against high global fuel prices after demand for refined petroleum rose following the post-pandemic period as economies re-opened.
The end-of-January 2025 condition, technically known as a structural benchmark, to review the fuel stabilisation programme is part of the multi-year IMF programme that has seen Kenya receive Sh536.5 billion from the global lender since it started in April 2021.
The Uhuru administration was forced to subsidise consumers in July and August 2022 following a rise in fuel prices as economies re-opened pushing up demand for the input.
Ruto’s administration would end the subsidy starting with Super Petrol in December of the same year.
However, the government gave the subsidy again in the October-November 2023 cycle as the economy grappled with a weakening shilling and a rise in global prices of refined fuel which pushed up the pump prices.
Moreover, fuel prices rose sharply after the government pushed through Parliament the Finance Bill that doubled the fuel tax, sparking public anger over the high cost of living. Fuel has a major bearing on inflationary pressures, being a critical input in sectors such as transport, manufacturing and agriculture.
However, the government explained that it was not a subsidy but price stabilisation because it had tapped the money from the Petroleum Development Levy Fund as opposed to from the exchequer.
Official documents show the Treasury spent more than Sh47.26 billion between April and June 2024 to stabilise retail prices of petroleum products—diesel, petrol and kerosene, with a big chunk coming from taxes.
The government said the money was used to stabilise fuel prices due to a sharp rise in global fuel prices.
