Treasury struggles as fuel subsidy hits Sh71bn in six months

An attendant fills a tank at Rubis Petrol Station on Koinange Street in Nairobi. PHOTO | DENNIS ONSONGO | NMG

Kenya has spent Sh71.17 billion to subsidise diesel, super and kerosene in the six months to June, highlighting the burden of the fuel stabilisation scheme on the national budget.

Consumption data from Energy and Petroleum Regulatory Authority (Epra) shows Kenya has spent an average of Sh11.86 billion monthly to keep fuel prices low for six months to June.

While Kenya collects Sh5.40 a litre from motorists for the subsidy fund, the sharp rally in crude oil prices has forced the government to dip into taxes to ease public outrage over the high cost of living.

The World Bank says the monthly expenditure on the programme that started in April continues to hurt the budget and planning, signalling its intention to push for the scrapping of the subsidy.

The International Monetary Fund (IMF) has set a fresh loan condition requiring Kenya to drop the fuel subsidy programme by October, exposing motorists to a sharp rise in pump prices.

Without the subsidy, motorists would have paid a historic high of Sh214.03 per litre of petrol and Sh206.17 for diesel in what could have stoked pressure on inflation.

The subsidy has, however, failed to stem inflation now at 8.3 percent outside the government's preferred band of 2.5-7.5 percent on soaring food prices.

The government has promised to keep the subsidy to the end of the year despite pressure from the Bretton Woods institution.

"In terms of the subsidy programme, there was a commitment given by His Excellency the President and the CS that the government will look at continuing to offer a safety net to Kenyans," said Epra director-general Daniel Kiptoo last month.

Diesel accounted for the largest share of the subsidy at Sh45.7 billion, followed by super petrol (Sh23.3 billion) and Sh1.9 billion for kerosene in the six months.

The costs of energy and transport have a significant weighting in the basket of goods and services, which measures inflation in the country.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.

The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.

Kenya's inflation climbed to a 61-month high in July at 8.3 percent from 7.9 percent, squeezing household budgets and demand for goods and services.

The World Bank and the IMF have gained a bigger say in government policy after Kenya turned to the multilateral institutions for concessional loans in the wake of the Covid-19 pandemic ravaging the revenues and limiting the country's access to the commercial loans market.

A jump in the current pump prices would have stoked public anger in the first month in office for President Uhuru Kenyatta's successor.

After a fiercely fought presidential election race, Deputy President William Ruto won 50.5 per cent of the vote against opposition leader Raila Odinga's 48.8 percent, according to results declared by the electoral commission's chairman, Wafula Chebukati.

Mr Odinga rejected the results, signalling another Supreme Court battle starting Monday.

Whoever takes office will have to steer a pandemic-battered economy, rising food and fuel prices spurred by the war in Ukraine, the worst drought in four decades and soaring public debt.

He also needs to decide on whether to maintain the fuel subsidy. Kenya last week dropped a maize flour subsidy that had halved the cost of the staple food.

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Note: The results are not exact but very close to the actual.