Kenyan President William Ruto has removed a fuel subsidy that has further exhausted the state’s already strained coffers in the East African nation.
Just a day after Ruto was sworn-in, the government of Kenya through the Energy & Petroleum Regulatory Authority dropped subsidies on gasoline, pushing prices to a record high of 3%.
Ruto said; “Subsidies had been costly and prone to abuse, including causing artificial shortages of the subsidised products.
“The elimination of the subsidy on gasoline is a welcome move as it recognizes the very limited fiscal space that Kenya has.
“A separate subsidy on corn, used to make a staple known as ugali, cost as much as 7 billion shillings in just one month.
“Rather than targeting assistance at consumers, the new administration will seek to try and reduce food production costs and increase output by subsidizing inputs such as fertilizer and quality seeds.
“As a first step, 1.4 million bags of fertilizer will be offered to farmers for 3,500 shillings each from next week, 3,000 shillings less than the current cost”.
The President had faced the dual tasks of stabilizing government finances and bringing surging living costs under control. Kenya’s public debt ballooned to 8.6 trillion shillings ($71 billion) in June, from 1.9 trillion shillings in 2013 when the previous administration came to office, and the International Monetary Fund classifies the country as being at high risk of debt distress.
Meanwhile, inflation may be on track to hit double digits in the fourth quarter due to global price pressures, according to analysts including Razia Khan, Standard Chartered Bank’s London-based head of research for Africa and the Middle East.
Head of Research at Nairobi-based Sterling Capital Ltd, Renaldo D’Souza said, “We expect the president to make a few unpopular policy decisions, as much as we also expect the opposite as he attempts to keep up the promise to reduce the cost of living.
“It was clear from the onset that the fuel subsidy was unsustainable in the long run.
“The action on fertilizer prices and helping to boost production is sound, but cannot on its own alter very near-term developments,” Khan said.”