Ruto Slashes Subsidies to Zero on IMF Conditions
President William Ruto adhered to the conditions set by the International Monetary Fund (IMF) and eliminated all subsidy spending in the first quarter of September.
The government had Initially earmarked to allocate Sh24.87 billion in government subsidies, mainly for fertiliser, in the financial year 2023/24. However, no funds were allocated for this purpose between July and September. During the first quarter of the 2022/23 financial year, the government had expended Sh43.91 billion on subsidies for commodities like maize flour, fuel, electricity, and fertiliser. Nonetheless, in this present financial year, the government has opted for a distinct approach, as none of those resources have been subsidized over the same timeframe.
The impact of the subsidy removal is being felt by the consumers, and record-breaking fuel prices are the main culprit. The resulting inflation has risen significantly over the past year. Statistical figures indicate that fuel inflation contributions to overall year-on-year inflation were higher in September 2023 (2.2 percentage points) compared to September 2022 (2.1 percentage points). Upon assuming office in September of the previous year, Dr Ruto promptly terminated a controversial short-term maize flour subsidy program and initiated an investigation into its implementation.
Former President Uhuru Kenyatta implemented a subsidy program in his last month in office aimed at reducing the cost of maize flour in the lead-up to the August elections. Approximately Sh7.26 billion was allocated for this program, with Sh4 billion disbursed to millers. Additionally, Dr Ruto Ruto phased out the initiative that had resulted in a 15 per cent reduction in power prices since January of the previous year.
As a means of counterbalancing the price reduction, the government pledged Sh14 billion in subsidies to Kenya Power, following the President's cessation of the fuel subsidy and preset determination to stabilize fuel prices solely through the Petroleum Development Levy (PDL). While this was done, Dr Ruto emphasized the fertilizer subsidy's importance in vastly reducing food production costs, deciding to maintain it despite the eventual axing of the fuel subsidy. 2022 saw an overall price cut in fertilizer from Sh6,500 to Sh3,500 per 50-kilogram bag, an endeavour borne out of a subsidy, which translated to approximately another 40% drop in preparation for the yearly planting quota. In August of this year, he further reduced the price to Sh2,500 in preparation for the October planting season.
The lender recently advised Kenya to proceed with its recommended measures of fiscal restraint to restrict unnecessary expenditures in the public sector. These measures include prioritizing the digitization of government services, improving the effectiveness of public investments, and refining the allocation of subsidies. The ultimate goal of these actions is to create financial flexibility for the Treasury.