Kenya’s government is grappling with a depleted fuel subsidy kitty just as pump prices surge to historic highs, exposing deep fiscal stress and triggering widespread consumer unease.
The Petroleum Development Levy (PDL), Kenya’s fuel stabilisation mechanism funded by deductions from motorists, has been strained to breaking point due to spiking global crude prices and a weakened levy fund, forcing the Treasury to halt the subsidy scheme altogether.
Treasury Principal Secretary Julius Muia testified to Parliament that the PDL fund could not accommodate a Sh5 billion request in September, because it had dwindled to a balance of only Sh3.6 billion, insufficient to maintain subsidized fuel pricing this pricing cycle.
As a result, petrol and diesel prices jumped sharply fuel in Nairobi reaching unprecedented levels in the national pricing review.The fuel subsidy had previously kept pump prices unchanged for several months, but with the fund exhausted, the cushion disappeared.
The subsidy scheme, introduced in April 2021 and financed by a flat levy of Sh5.40 per litre on petrol and diesel (Sh0.40 for kerosene), initially helped shield consumers from fluctuations in global oil markets.
However, the rising cost of crude pushed payouts to oil marketing companies (OMCs) beyond projected allocations, forcing the Treasury to tap into exchequer resources to settle shortfalls a move criticized by observers and the IMF alike.
Latest data show Kenya spent approximately Sh71.17 billion on fuel subsidies in the six months to June, averaging more than Sh11.8 billion a month equivalent to 0.3 percent of GDP.
Diesel accounted for Sh45.7 billion of that total, super petrol Sh23.3 billion, and kerosene Sh1.9 billion.
Treasury documents further reveal total subsidy expenditure from April 2023 to June 2024 hit Sh47.26 billion almost double the Sh24.88 billion initially budgeted forcing additional borrowing and budgetary reallocation.
Auditor‑General Nancy Gathungu highlighted that the government diverted Sh58 billion from the Railway Development Levy to sustain subsidy payments an illegal breach of the Petroleum Development Act, sparking concerns over governance and fiscal discipline.
This diversion contributed to severe underfunding of both the PDL and the RDLF, weakening infrastructure financing and jeopardizing the Standard Gauge Railway’s operational viability.
The IMF has sharply criticized the subsidy program, arguing that continued payments without fiscal backing distort public finances and violate loan conditions attached to concessional funding. The institution reiterated Kenya must eliminate the subsidies by set deadlines or risk funding disruptions.
With the subsidy program dismantled, fuel prices have soared: in Nairobi, super petrol now rings in around Ksh159 per litre, diesel Sh140, and kerosene Ksh127 levels significantly higher than past cycles when the subsidy absorbed global oil shocks.
Consumers, especially lower‑income households, face immediate economic pain as transport, energy, and goods costs cascade upward, feeding into already elevated inflation.
Government officials argue that subsidy removal is necessary to preserve debt sustainability, reduce budget deficits, and free up funds for healthcare, education, and agriculture. However, critics warn that without complementary social protections such as food subsidies or wage support the move risks deepening hardship for the most vulnerable.
As Kenya enters a high‑inflation environment and public frustration rises, the depletion of the fuel subsidy kitty stands as a case study in the challenges of balancing relief measures against fiscal responsibility.
With no viable cushion to absorb future global price shocks, stakeholders fear further hikes unless structural reforms and alternate safety nets are implemented promptly.
Written By Ian Maleve
