Kenya Treasury cuts fuel subsidy by half to $200m starting July
Thursday May 02 2024
The Treasury, in budget estimates, has allocated Sh27 billion to the Petroleum department for fuel subsidy in financial year 2024/25.
Kenya's National Treasury has cut allocations for fuel price subsidy by half in the financial year starting July.
The Treasury, in budget estimates, has allocated Ksh27 billion ($200.7 million) to the Petroleum department for the subsidy. This is less than half the Ksh54.18 billion ($402.8 million) budgeted for fuel price stabilisation this year ending June.
Included in this allocation were Ksh25.2 billion ($187.4 million) for owings to the oil companies for subsidy arrears. It is not yet clear if the allocation for the fuel subsidy in the new fiscal year will be used to stabilise prices or settle the debt to oil companies.
This financial year, the government paid oil marketers Ksh27.84 billion in the six months to December 2023 for price stabilisation and settling debts.
Read: IMF backs Ruto’s fuel price stabilization plan
The subsidy helped to cushion consumers from record-high fuel prices that breached the Ksh200 mark per litre for the first time in September.
Fuel prices have since dropped for the fifth month in a row buoyed by the strengthening of the shilling against the US dollar in recent months, handing consumers further relief.
But the Treasury has warned of the risk of higher fuel prices due to a rally in global crude oil prices, which could drive inflation, reversing the slowdown in inflationary pressures in recent months.
“A key risk to inflation is international that has trended upwards since January 2024, largely driven by disruptions to shipping through the Red Sea, and production cuts by Opec+ and other allied oil producers,” said the Treasury.
The Kenyan economy relies on diesel with manufacturers, farmers, and service providers factoring in the cost of fuel in setting prices for their goods and services.
In the April 14 review, the price of Super dropped to Ksh193.84 per litre from Ksh199.15 in Nairobi while diesel fell to Ksh180.38 from Ksh190.38.
The biggest relief was in kerosene price that dropped by Ksh18.68 per litre to Ksh170.06, giving consumers that use the fuel for lighting and cooking a big relief.
The regulator linked the relief to the strengthening shilling, using an exchange rate of Ksh133.54 to the dollar. The next review is on May 14.