Gov't delays end of subsidy as fuel prices threaten to pass Ksh.200 mark
The government has held back against plans to
phase out the fuel subsidy with petrol prices having threatened to breach the
Ksh.200 mark without the support mechanism.
On June 15, the National Treasury - in a
statement to newsrooms - indicated plans to roll-back the subsidy which it
deemed untenable.
This is after the subsidy had eaten up the
bulk of its Ksh.100 billion budget allocation in the 2021/22 and 2022/23 fiscal
cycles.
“The cost of fuel subsidy could eventually
surpass its allocation in the national budget, thus potentially escalating
public debt to unsustainable levels and disrupting government’s plans to reduce
the rate of debt accumulation,” the National Treasury said.
“For this reason, a gradual adjustment in
domestic fuel prices will be necessary in order to progressively eliminate the
need for the fuel subsidy, possibly within the next financial year.”
On Thursday, State House indicated that the
fuel subsidy had already eaten up Ksh.101.9 billion since its first utilisation
in April last year.
Nevertheless, with petrol prices threatening
to breach the Ksh.200 mark, the government has paused the planned wind up of
the subsidy to shelter Kenyans from higher fuel prices.
Moreover, in allocating a further Ksh.16.7
billion to the subsidy program, the government has raised the difference
compensated from the subsidy to Ksh.50.66 for super petrol, Ksh.53.70 for
diesel and Ksh.53.22 for kerosene.
This from a previous cover of Ksh.25.56,
Ksh.48.19 and Ksh.42.43 respectively in the preceding pricing cycle.
The retained subsidy has spared motorists
from paying Ksh.209.78 for petrol and Ksh.193.70 for diesel.
Kerosene prices would meanwhile stand at
Ksh.181.16 without the deployment of the subsidy.
The higher prices are mirrored by a 19 per
cent jump in cost of imported super petrol in June and a 2.2 per cent jump in
imported diesel costs.
At the same time, the Kenyan shilling
depreciated by 1.41 per cent to exchange at a mean exchange rate of Ksh.118.53
against the US dollar in June.
Fiscal pressures emanating from the stay of
the fuel subsidy are nevertheless set to ease should the recent trend
represented by declining global oil prices stick into coming months.
For instance, the price of Murban Crude has
fallen from $122.22 per barrel (Ksh.14,453) on June 14 to $100.65 (Ksh.11,902)
on Thursday.
The falling global oil prices have been
attributed to growing recession fears in advanced economies including the
United States and the European Union (EU).
Should the falling global oil prices stick,
this development could offer the government the opportunity to pull the fuel
subsidy without resulting in higher domestic prices.
A further decline in global prices towards
COVID-19 pandemic levels could meanwhile see the government kill two birds with
one stone as lower crude prices cut both domestic prices and eliminate the need
for the fuel subsidy.
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