The International Monetary Fund has raised concern over Kenya’s plan to reintroduce fuel subsidies.
Business Insider reported that the global lender expressed reservations about the scheme’s feasibility, stressing that Kenya may not be able to pay oil traders due to financial constraints.
The bank also mentioned an unpaid bill in the sector stating that Kenya may be unable to pay oil marketers, resulting in budget distortion.
Furthermore, the bank highlighted that Kenya’s treasury was yet to pay the companies the necessary Ksh9 billion ($55.6 million) from the previous year.
The plan to reintroduce fuel subsidies contradicts President William Ruto’s initial take on the program. The president had spoken about the folly of fuel subsidies, in accordance with the terms for obtaining billions of shillings in loans from the Bretton Woods institution, and promised to end the program.
“A liter of petrol and diesel retailed at Ksh217.36 ($1.34) and Ks205.47 ($1.27) respectively in Nairobi in the pump prices announced on October 15 last year as the subsidy prevented prices from shooting to Ksh220.43 ($1.36) and Ksh217.11 ($1.34) respectively,” according to a report by the East African newspaper.
Nonetheless, the global lender raised concerns about the usage of the subsidy since it was one of the new requirements stipulated by the bank as part of a 38-month budget support scheme.
“The lengthy process in forming the task force and the publication of its decision (review of fuel pricing to ensure decisions are aligned to available funds) resulted in a delayed implementation of the structural benchmark,” the International Monetary Fund said.
“This reflects the need for internal consultation on how to finance recent domestic price decisions on October 15 and November 15 which resulted in limited but unbudgeted fuel subsidies (about 0.1 percent of GDP over the two price cycles),” the bank said in a statement.
When the subsidy was lifted in May 2023, pump prices rose to record highs of Ksh182.70 ($1.13) and Ksh168.40 ($1.04) per liter of super petrol and diesel, respectively.
