Page 14 - DMEA Week 24 2022

DMEA FUELS DMEA

Kenya to adjust refined oil product

prices to phase out subsidies

AFRICA KENYA intends to phase out subsidies of petro- could surpass allocation in the national budget,
leum products to create fiscal space for the potentially escalating public debt to unsustaina-
government to support targeted spending on ble levels and disrupting the government’s plans
productive sectors. to reduce the rate of debt accumulation.
The National Treasury intends to support “Additionally, scenario analysis suggests that
targeted public spending on productive sectors fuel prices could increase further, but even if they
such as fertiliser subsidies, universal health cov- do not, they are not expected to revert to levels
erage and subsidised primary and secondary experienced prior to the Russia-Ukraine war,”
education, among others. said Yatani.
Kenya’s government has allocated over From the onset of the war in Ukraine there
KES100bn ($851.8 mn) in the financial years has been elevated volatility and uncertainty
2021/22 and 2022/23 to subsidise prices of pet- in international oil markets, given Russia is
rol, diesel and kerosene to cushion consumers third-biggest exporter of crude in the world,
from high international costs. commanding 11% of the global market share.
The fuel subsidy programme started in Octo- This has resulted in significant increases in
ber 2021. Elimination of subsidies will begin in fuel prices in recent months to levels not seen
2023/24. since 2008, with an increase of more than 50 %
National Treasury Cabinet Secretary Ukur between December 2021 and May 2022, gravely
Yatani said fuel subsidies are inefficient, lead to affecting on the cost of living.
misallocation of resources and crowd out public “Fuel accounts for 20% of Kenya’s import bill.
spending on productive sectors disproportion- The volatile international oil prices thus expose
ately benefiting the well-off. Kenya’s open economy to the risk of imported
“For this reason, a gradual adjustment in inflation,” said Yatani.
domestic fuel prices will be necessary in order He said the government has been subsidising
to progressively eliminate the need for the fuel fuel prices to ensure the rising cost of petroleum
subsidy, possibly within the next financial year,” products does not push prices of the most basic
he said in June 15 press release. commodities and services beyond the reach of
Treasury contends the cost of fuel subsidies most citizens.™

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