IMF Backs President Ruto’s Fuel Price Stabilization Plan

FRIDAY AUGUST 18 2023

President William Ruto gestures while giving a speech during the Biennial Devolution Conference at Eldoret Sports Club in Uasin Gishu County, Kenya on August 16, 2023. PHOTO | JARED NYATAYA | NMG

By JAMES ANYANZWA

The International Monetary Fund (IMF) has thrown its weight behind President William Ruto’s fresh plan to stabilize fuel prices through the resources accumulated in the Petroleum Development Levy (PDL) Fund amid divergent views on whether the government’s latest action was tantamount to a ‘subsidy’.

IMF, which propagates policies considered to be unpopular with the masses such as taxation of fuel, increasing of interest rates and removal of government subsidies on fuel in exchange for financing, said the latest action by the government to cushion consumers from high fuel prices through the PDL is not a breach of Kenya’s commitments under the IMF-supported program.

“As long as the action taken by the government is financed by the resources accumulated in the Petroleum Development Fund, the action does not lead to a breach of the government’s commitments under the IMF-supported program," Selim Cakir, IMF’s Resident Representative in Kenya, told The EastAfrican in an emailed response on Thursday.

In its latest monthly fuel review (August 15-September 14) the state curbed further increases in fuel prices by opting to compensate oil marketers with the price differential amounting to Ksh7.33 ($0.05) per litre of petrol, Ksh3.59 ($0.02) per litre of diesel and   Ksh5.74 ($0.04) per litre of kerosene. 

President Ruto clarified that this action is not a ‘subsidy’ but purely a fuel stabilization mechanism through the PDL fund that is financed by motorists at the rate of Ksh5.4 ($0.03) per litre of fuel.

However, whether it is a subsidy or merely a fuel price stabilization plan depends on whom you talk to.

“The basic fact is we will no longer be operating at market price, and the cushioning effect will be provided by the government. That is a basic description of a subsidy,” said Ken Gichinga, chief economist at Mentoria Consulting.

“This is simply a subsidy which is sneaked to enhance price stabilization. Just the government wants to save face. It does not really matter but all in all the subsidies are back,” said Dr Samuel Nyandemo, a senior lecturer at the University of Nairobi’s School of Economics.

Dr Ruto who was sworn in as President on September 13, 2022, abolished petrol and maize subsidies in his first week in office, arguing that subsidizing of consumption is ‘unsustainable’.

This follows pressure from the IMF for the government to remove fuel subsidy as one of the structural benchmarks for sustaining its funding programme for the country.

“Steps taken by the new administration toward removing fuel subsidies, remaining actions under the structural benchmarks (SB) are now expected to be implemented by end-December 2022,” IMF said last year.

Since September, domestic petrol prices have been adjusted in line with developments in international markets and in May this year (2023) the subsidy on Diesel and Kerosene was also fully eliminated.