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Painful, but removal of subsidies right way to go

President William Ruto with Central Bank of Kenya Governor Patrick Njoroge after a meeting in 2019. [DPPS]

President William Ruto’s decision to do away with various subsidies mooted under the previous Jubilee administration is the right way to go.

Judging from their efficacy or lack thereof, they were not based on compelling rationale. They are not sustainable in a country grappling with public debt incurred at usurious rates.  Neither debt nor subsidies seem to have had the intended benefits.

Some of these subsidies have become instruments of corruption. Take for instance the petroleum subsidy. Initially set up under the Petroleum Development Levy Fund Act of 1991, its purposes were twofold; to protect consumers by stabilizing fuel prices whenever there were surges in global oil demand and for infrastructure upgrades in the petroleum sector. 

Yet last year, this fund was diverted to other State agencies without parliamentary sanction as required by the law. Auditor General Nancy Gathungu questioned some of these diversions amounting to billions of shillings. In her report, she said, “no documents were tabled to the Auditor General to show how funds were used by agencies and a private company.”

This systemic abuse of the fund led to its depletion. Following nationwide shortages of fuel at outlets last year, this column decried the ludicrous notion of petroleum subsidies from non-existent funds. It predicted that the subsidy would either be financed from other taxes or withdrawn altogether.

The unga subsidies on the other hand were meant to be a blow valve to manage popular discontent.  Initiated just before last year’s national elections, they were intended to shore up the Jubilee administration’s plummeting public esteem and credibility. It was thought that a hungry electorate could be suborned by packets of maize flour, a Kenyan staple, retailing at Sh100. Instead, it had the unintended deleterious effect of causing shortages of the commodity.

It is now clear that the subsidies spoke to a generosity of spirit that the Jubilee administration did not possess. The illusion of a caring administration was quickly dispelled by the reduced circumstance in which the vast preponderance of citizens found themselves. It is in this state of privation that the Ruto administration took over.

No right-thinking Kenyan is under the illusion that the economy can be rejigged overnight.  A country that was in freefall for over five years will certainly need prescient leadership to overcome the deficiencies of the past administration. Withdrawal of fuel, maize flour and electricity subsidies is a crucial first step. As President Ruto has said, it will save the country over Sh25b every month.

Ruto’s policies are a departure from the past where “programmes were not based on science but were used for political expediency.” Redirecting subsidies to agricultural inputs like seed and fertilizer moves the focus from consumption to long-term production solutions. And because Kenya seems to be headed for yet another failed rain season in most parts of the country, it makes sense to focus funds on the building of dams.

Ruto’s policies are intended to put money in the pockets of ordinary Kenyans. Which is why it is disingenuous for a section of the political elite to call for the reinstatement of subsidies. At a point in time when austerity measures will lead to long-term gains, this is not the moment to call for an upward review of public sector wages. Nor is it the season to “capitalize on the disaffection of workers, university lecturers and school teachers” for political mileage. Making noise for the sake of it is not synonymous with patriotism.

Kenyans expect the Opposition to provide oversight in constructive ways. Instead of calling for the reinstatement of the unsustainable 15 per cent low-cost Kenya Power electricity subsidy, they should be looking into reasons why the  cost of power is high in the first place.

-Mr Khafafa is a public policy analyst