Nairobi — World Bank has expressed concerns that the issuance of fuel subsidies to oil dealers is putting a strain on the Government's expenses and is subsequently hurting the country's budget and planning.
The fuel subsidy which was introduced in October 2021 through the petroleum development levy in order to cushion Kenyans from high fuel prices sees the Government spending approximately USD 66 million to subsidize the prices of diesel, super, and kerosene.
Currently, petrol is being subsidized by Shs 20.4 per liter, diesel by Shs 27.6 per liter, and kerosene by Shs 26.9 per liter.
"The limited passthrough of higher international oil prices to consumers is generating fiscal costs, with the total monthly cost of subsidizing fuel estimated to be approximately USD66 million," World Bank said.
While it did not propose any interventions to rid the subsidies, World Bank said, "fuel subsidies is hindering the fiscal performance which benefitted from strong economic recovery aided by the improved service sector and increased revenue."
"Fiscal performance has also benefitted from the strong economic recovery supporting revenues, but this is now being countered by the cost of subsidizing fuels. The rebound in economic activity and ongoing tax reforms and revenue administration improvements have boosted revenue collection," the Bretton woods institution said in a statement.
The total allocations to fuel price stabilization for the previous fiscal year amounted to Shs25.0 billion (0.2 percent of GDP)n and further reached 34.1 billion (0.3 percent of GDP) in Q3 FY2021/22.
Fuel prices were kept unchanged from October 2021 to February 2022, followed by increases in March and April 2022 when the Government partly withdrew the subsidy.
Overall, World Bank projected Kenya's real gross domestic product (GDP) to grow by 5.5 percent in 2022 and 5.2 percent on average in 2023-24.
"This growth rate, while still strong, will be a moderation following a remarkable recovery in 2021 from the worst economic effects of the pandemic, when the country's economy grew by 7.5 percent, much higher than the estimated average growth in Sub-Saharan Africa of 4 percent.
