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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 programme.
“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 (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 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 (US$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. -The East African
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