Ruto’s fuel subsidy plan dealt a major blow after oil producer’s deal
Ruto’s plan to entirely remove fuel subsidies would meet impediments as a result of the top oil-producing nations’ agreement to drastically reduce oil exports.
On Wednesday, the Opec+ group of 23 oil-exporting nations agreed to cut output by two million barrels per day in an effort to return oil prices to $100 per barrel for the first time since July.
The Organization of the Petroleum Exporting Countries (Opec), which has 13 members, such as Saudi Arabia, and allies like Russia claimed the decision was made to stabilize prices.
The decision by Opec+ countries has dimmed expectations of lower fuel prices in coming months, a projection that partly informed Kenya’s decision to remove subsidy on petrol last month.
“There was hope that the drop in global fuel prices might start filtering through the economy. Net importing countries like Kenya had been hoping for more relief, particularly with the removal of the subsidy programme,” said Ken Gichinga, chief economist at Mentoria Economics. “But now the price drop might not be as significant as we had expected.”
Global oil prices have been falling in recent months largely on increased supply by exporting countries, but Wednesday’s deal to reverse policy on higher output has raised fears the cost will climb.
The decision comes after EPRA scrapped the price cushion on petrol for the current month cycle through October 14, following Ruto’s directive on fuel subsidies claiming they’re unsustainable and prone to abuse.
The low output by Opec+ countries will leave crude oil prices elevated, inevitably pushing up pump prices and further pushing up inflation which hit a 63-month high of 9.2 percent in September.
“The drop in inflation which we had hoped will start dropping towards the end of this year might be delayed a bit,” Mr. Gichinga said, adding that this will pile pressure on Ruto’s government to relook at the fuel subsidy.
“They took the decision to balance their budgets. They are raising their income but hurting others. Low-income countries will experience the worst effects of the decision,” Kwame Owino, the chief executive of the Institute of Economic Affairs, an economic policy think-tank, said
“The pressure [to review the policy on subsidy] will be there,” he added.
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