Tough Times as Ruto Vows to End Fuel, Food Subsidies

Tuesday, September 13, 2022

Bodaboda operators line up to buy fuel at a Nyeri petrol station.

Bodaboda operators line up to buy fuel at a Nyeri petrol station on April 7, 2022. Fuel prices could hit a historic high after today’s monthly review of prices as President Ruto vowed to end the subsidy that has kept prices stable since July.

Joseph Kanyi | Nation Media Group

By Brian Ambani

Nation Media Group

What you need to know:

Fuel prices could hit a historic high after tomorrow's monthly review of prices as President Ruto vowed to end the subsidy that has kept prices stable since July.

President Ruto hinted that he would do away with subsidies on fuel and food, arguing that they are a huge burden to the exchequer and often lead to product shortages.

The Head of State said subsidy interventions by the outgoing administration have not borne fruit, and that his administration would focus on enhancing production to increase the supply of commodities.

Fuel prices could hit a historic high after tomorrow’s monthly review of prices as President William Ruto today vowed to end the subsidy that has kept prices stable since July.

The Energy and Petroleum Regulatory Authority (Epra) is tomorrow expected to announce new fuel prices to be in place for the next month.

During his inauguration at the Kasarani stadium yesterday, President Ruto hinted that he would do away with subsidies on fuel and food, arguing that they are a huge burden to the exchequer and often lead to product shortages.

Maize prices 

“In addition to being very costly, consumption subsidy interventions are prone to abuse, distort markets and create uncertainties, including artificial shortages of the very products we seek to subsidise,” said the President.

The Head of State said subsidy interventions by the outgoing administration have not borne fruit, and that his administration would focus on enhancing production to increase the supply of commodities, especially agricultural products, to naturally lower prices.

“On fuel subsidy alone, taxpayers have spent Sh144 billion, including Sh60 billion in the last four months alone. If the subsidy continues to the end of the financial year, it will cost taxpayers Sh280 billion, equivalent to the entire national government development budget,” said President Ruto.

Price hike

Withdrawal of the fuel subsidy could see fuel prices shoot to the highest level on record. Last month, the subsidy shielded the prices of petrol from jumping to Sh214.04 a litre, up from Sh159.12.

Meanwhile, the cost of diesel would have also jumped to Sh206.17, up from Sh140.03, while that of kerosene would have also gone up to Sh202.11 up from Sh127.94, according to Epra.

President Ruto also singled out the maize subsidy that was rolled out by former President Uhuru Kenyatta in July to ease pressure on flour prices ahead of the August 9 elections, stating that Sh7 billion was spent on the programme in a month.

The short-lived maize flour subsidy was mired in scandal after millers withdrew the product from the shelves, claiming non-payment of the subsidy funds by the government, and leading to a maize flour shortage.

“The cost of living challenges are related to production. Our strategy to bring down the cost of living is empowering producers. The main cause of the decline in production (of maize) is the high cost of inputs,” said President Ruto, as he announced a fertiliser subsidy.

He said local farmers will produce less than 30 million bags this year against a usual annual production of about 40 million bags, attributing the shortfall to the high cost of fertiliser, fuel and quality seed.

President Ruto cut fertiliser prices by nearly half ahead of the short-rains planting season, with the cheap fertilizer available from next week.

“For the short rains, we have already made arrangements to make available 1.4 million bags of fertiliser at Sh3,500 for a 50-kilogramme bag, down from the current Sh6,500. This fertilizer will be available from next week,” he said.

Inflation

The withdrawal of the fuel and food subsidies is set to push inflation to a new high, with higher fuel prices having a ripple effect on the cost of other goods and services.

Inflation hit 8.5 per cent in August, driven by a sharp increase in the cost of food, and fueling the high cost of living.

It was the highest inflation rate in five years, driven mainly by a sharp rise in the prices of food, fuel and cooking oil over the past 12 months.

The year-on-year cost of food commodities has gone up 15.3 per cent between August last year and this year as the prices of staple food items such as maize flour went up due to the low local production and lower imports amid global supply chain disruptions.

bambani@ke.nationmedia.com