Central Bank of Kenya Governor, Dr Patrick Njoroge has warned lawmakers over the risks of public subsidies during a five-day induction retreat at the Safari Park.
Following the just concluded fuel and electricity subsidies, Njoroge told the MPs that there is a need for long-term solutions to cushion Kenyans from hard economic times.
“Any subsidy is a cost that somebody needs to be taxed to cater for it. Subsidies are very good at that time but later they reflect on the inflation rate as it is likely to go up,” Njoroge said.
He also said the subsidies had contributed to high inflation rates and the public forced to pay higher taxes.
During President William Ruto’s inauguration speech, he said his government will eliminate the subsidy programme that has kept fuel at high prices. He said that the subsidy had cost the government at least Sh144 billion in the previous financial year.
“If the programme continues to the end of the financial year, it will cost the taxpayer Sh280 billion, equivalent to the entire National Government’s development budget. In addition to being very costly, consumption subsidy interventions are prone to abuse, they distort markets and create uncertainty, including artificial shortages of the very products being subsidised,” Ruto said.
Ruto’s sentiments immediately saw retail fuel prices in Kenya hit a new high, resulting to the termination of the fuel subsidy programme.
New prices set by the Energy and Petroleum Regulatory Authority (EPRA) stated that a litre of petrol is to retail at Sh179.30 from Sh159.12 and diesel at Sh165, from Sh140. The retail price of a litre of kerosene has hit a new high of Sh147.94.