Team set up to review fuel pricing

The government has set up a taskforce to review Kenya's fuel prices, the International Monetary Fund (IMF) has said. According to the IMF, the taskforce was set up in May this year and is required to publish its findings by August 31.

While the IMF has not revealed the details of the taskforce's desired outcomes, it has stated that its mandate is to reform fuel pricing decisions to ensure that domestic prices are at all times aligned with budgeted resources.

The IMF has in the past questioned Kenya's use of fuel subsidies, saying the intervention was wasteful and untargeted, and therefore failed to support the most vulnerable in the country.

In 2022, as part of its programme with the IMF, Kenya had set October 31 as the end date for fuel subsidies, before extending this to December 31. Fuel subsidies were not removed until the pump price review in May 2023, a move that triggered a spike in the cost of petroleum products across the country.

Kenya Kwanza administration abandoned the subsidy programme, citing the need to subsidise production rather than consumption, after fuel subsidies in 2022 cost taxpayers Sh19 billion a month.

"Despite some initial delays, a task force was established in May 2023 to review the fuel pricing mechanism and ensure that fuel pricing decisions are always aligned with budgeted resources.

"While the review of the pricing mechanism has commenced, the delays in establishing the taskforce have affected the timeline for the review of the fuel pricing mechanism. The findings of the taskforce are now expected to be publicly announced by the end of August 2023," said the IMF report following the completion of the fifth review of Kenya's current programme.

In March this year, Kenya entered into a government-to-government arrangement for the importation of petroleum products to ease foreign exchange pressures in the market. The IMF now says that the Attorney General's Office has indicated that the legal arrangement underlying the government-to-government credit-based arrangement will not lead to an increase in Kenya's public debt position.

"The National Treasury should limit fiscal risks from fuel prices to ensure fiscal sustainability. Risks associated with the new oil import regime should be limited by adjusting its design after the initial phase-in period so that all risks are borne by the private sector. Similarly, to reduce risks to the budget, changes to the mechanism for setting pump prices should ensure that fuel price decisions are always aligned with budgeted resources," the IMF report said.

IMF data shows that between fiscal years 2021/22 and 2022/23, a total of Sh91.9 billion was spent on fuel subsidies in Kenya, with the amount being net of Petroleum Development Levy expenditure.

The data shows that a total of Sh60.6 billion was spent on subsidies in 2021/22, while Sh31.3 billion is projected to be spent on the same in 2022/23.

Currently, the average price of a litre of petroleum product in the country is Sh182.88, of which Sh67.40 is accounted for by taxes and levies.