Fuel subsidy cost Sh81bn by June, official data shows

Motorists fuel at the Kileleshwa Shell Petrol Station in Nairobi. PHOTO | SALATON NJAU | NMG

Kenya spent Sh81 billion to keep fuel prices low in the financial year ended June highlighting the adverse impact of the scheme on the county’s budget that prompted its removal last week.

Latest data from the Controller of Budget (CoB) shows that Treasury freed up the billions from the exchequer in the first and second supplementary budget, preventing fuel prices from surging in the wake of the global rally in crude prices.

The CoB data shows that the government spent Sh1.6 billion in the last three months of the 2020/21 financial year to subsidise pump prices and avert public outrage over the high cost of living.

The Kenyan government is counting the actual cost on taxpayers for shouldering the extra cost of fuel with unofficial figures indicating the amount could run over a hundred billion.

President William Ruto said in his inauguration speech, the taxpayers have spent a total of Shh144 billion on fuel subsidies, a whopping Sh60 billion in the last four months

The billions spent on stabilising pump prices prompted Dr. Ruto to declare the subsidy un-sustainable setting the stage for an end to the subsidy on Super petrol and halving of the relief on diesel and kerosene in the monthly pricing cycle ending October 14.

“Consumption subsidy interventions are prone to abuse, they distort markets and create uncertainty, including artificial shortages of the very products being subsidized,” Dr. Ruto warned last week.

The high expenditure highlights the budgeting disruptions that prompted discontinuation of the subsidy on Super and half it on diesel and kerosene in the monthly pricing cycle lapsing October 14.

A litre of Super rose to a historic high of Sh179.30 in Nairobi discontinuation of the subsidy on the commodity while diesel and kerosene hit a high of Sh165 and Sh147.94 per litre on halving of the relief.

Kenya started the fuel subsidy scheme in April last year in a bid to cushion consumers against a spike in the cost of living given that the economy is diesel-driven.

Manufacturers, transporters and farmers factor the increased cost of diesel in the pricing of their goods and services, highlighting the critical role of diesel in determining the inflation rate.

Kenya has come under increased pressure from the International Monetary Fund to discontinue the subsidy by end of next month.

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