COST OF LIVING

Yatani right to want to scrap fuel subsidy

In Summary

• Fuel subsidy costs government around Sh8 billion per month

• The budgeted Sh100 million for the fuel subsidy is almost exhausted

Treasury CS Ukur Yatani ahead of the 2022-23 budget reading at the National Assembly on Thursday, April 7, 2022
Treasury CS Ukur Yatani ahead of the 2022-23 budget reading at the National Assembly on Thursday, April 7, 2022
Image: FREDRICK OMONDI

Finance CS Ukur Yatani is right that the fuel subsidy is unsustainable in the long run. The subsidy helped cushion the transition to higher prices but it has now served its purpose.

Government allocated Sh100 billion to subsidise fuel prices but the money will soon be exhausted. The subsidy costs about Sh7.65 billion per month but only reduces the cost of fuel by about Sh10. Is it really worth it?

The fuel subsidy disproportionately benefits the middle class. If you drive a car on your own, you receive ten times as much subsidy as a passenger in a matatu with ten seats. The subsidy is 'retrogressive'. It benefits the rich more than the poor.

The rising cost of fuel, driven by the Ukraine invasion, is indeed inflationary but so is printing money to pay for the subsidy. There is no escape from the inflation caused by rising global fuel prices.

Yes, government get more tax as a percentage as fuel prices go up but that is not a a bad thing given the Treasury's present indebtedness.

All in all, Yatani is right to insist that the fuel subsidy should be scrapped.

Quote of the day: "The power which establishes a state is violence; the power which maintains it is violence; the power which eventually overthrows it is violence."

Kenneth Kaunda
The first president of Zambia died on June 17, 2021