IMF endorses Kenya’s fuel price stabilisation plan to boost economy

The International Monetary Fund has given its approval to Kenya’s fuel price stabilisation plan, which aims to boost the country’s economy.

The plan, introduced by President William Ruto, involves using the resources accumulated in the Petroleum Development Levy Fund to stabilise fuel prices. While there have been varying opinions on whether this constitutes a subsidy, the IMF has stated that it does not breach Kenya’s commitments under the IMF-supported program.

The IMF is known for advocating policies that may be unpopular with the general public, such as the taxation of fuel, increased interest rates, and the removal of government fuel subsidies in exchange for financial support.

However, despite these policies, the IMF has provided its support to Kenya’s recent actions to protect consumers from high fuel prices using the PDL Fund.

According to Selim Cakir, the IMF’s Resident Representative in Kenya, as long as the government’s actions are financed by the resources accumulated in the Petroleum Development Fund, they do not violate the government’s commitments under the IMF-supported program.

This endorsement from the IMF gives credibility to Kenya’s fuel price stabilisation plan and reassures investors and the general public that the government’s actions are in line with international financial standards.

In its most recent monthly fuel review, the government implemented measures to curb further increases in fuel prices. This included compensating oil marketers with the price differential, which amounted to Ksh 7.33 (US$0.05) per litre of petrol, Ksh3.59 (US$0.02) per litre of diesel, and Ksh5.74 (US$0.04) per litre of kerosene.

President Ruto has provided clarification on the recent action taken, emphasising that it should not be viewed as a subsidy, but rather as a fuel stabilisation mechanism implemented through the PDL fund. This fund is financed by motorists at a rate of Ksh 5.4 (US$0.03) per litre of fuel.

However, whether this can be classified as a subsidy or simply a fuel price stabilisation plan remains a topic of debate.

According to Ken Gichinga, chief economist at Mentoria Consulting, the government’s involvement in providing cushioning effects suggests that this can be considered a form of subsidy. The key point is that the market price will no longer dictate the fuel costs under this mechanism.