The World Bank has cast doubts on Kenya’s ability to sustain its current fuel subsidy programme if the Ukraine conflict persists.
“Fuel subsidies in Kenya have contributed to stopping fuel prices from rising. This has been successful so far, but it will place pressure on public finance if the war continues,” says the World Bank in its April 2022 Africa’s Pulse Report.
The World Bank notes that the Russia-Ukraine conflict has led to high energy costs and warns that current high oil prices will affect countries that are shielding the impact on their consumers through fuel subsidies, including Kenya, Nigeria and Ethiopia.
Kenya’s National Treasury has set aside KSh25 billion for the fuel subsidy programme in the current financial year in the Supplementary Budget, raising hope that it will continue cushioning Kenyans at the pump in the short term.
But the Petroleum ministry has said the money it collects through the Petroleum Development Levy, which is channeled to the stabilization programme, is not enough to sustain the subsidy.
According to the World Bank, crude oil and natural gas prices grew by 39 and 31 per cent from January to March 2022.
The Bretton Woods institution warns that high fuel and food prices will affect consumer inflation across several countries in the Sub Sahara Africa region.
Before the outbreak of hostilities in Ukraine, supply chain problems, high transportation costs, and devastating weather effects from floods and droughts, etc., were already pushing up food prices in several low- and middle-income Sub-Saharan African countries.
Inflation data available from March 2021 to February 2022, shows that more than four out of five countries experienced year-on-year food inflation that exceeds 5 per cent—while nearly half of them experienced two-digit food inflation.
Sudan, Ethiopia, Angola, and Kenya had the highest food inflation rates in the Sub Sahara Africa region as of February 2022.
The Africa’s Pulse report states that declining COVID-19 cases have propelled Kenya’s business activity, which recorded an uptick in the PMI to 52.9 in February from 47.6 in January 2022.
Business confidence in Kenya has been zigzagging since the economy emerged from the 2020 recession, reflecting slow progress in reducing COVID-19 cases throughout 2021, supply chain disruptions, and looming uncertainty associated with the presidential elections this August.
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