Why government must keep eye on fuel prices

Friday, March 19th, 2021 00:00 |
Pump price. Photo/Courtesy

It is critical for the energy sector regular to do everything in its power to ensure that fuel and electricity prices remain fair and affordable because they have a direct impact on cost of production and transportation, which in turn directly affect inflation.

Already, many Kenyan workers and business owners have gone through a rough patch, either losing jobs or incomes, or having to make do with depressed revenues as a result of economic shocks caused by Covid-19. This is bad enough. 

In such an environment, where many households are struggling to stay afloat economically, and where businesses and industries have taken a severe hit on their revenues and bottom lines, it is imperative that taxpayers be cushioned from avoidable shocks, such as inordinately high fuel and energy prices.

However, it is not difficult to see where the government is coming from. Recent data indicates that Kenya is spending more on debt repayment than on recurrent expenditure.

In itself, this is already worrying, given that Treasury has not stopped borrowing and the true extent of Kenyan indebtedness is yet to made public.

Already, our recurrent expenditure is way too high, both at County and National government levels.

In some instances, the money set aside for development, especially in counties, is so little that for some, it does not register on the total expenditure map.

This is itself worrying for three reasons; First, it shows that our wage bill remains unsustainably high.

This is made even more acute by the large number of perks that public servants enjoy.

The net effect is that these payments drain public coffers. The second reason is that generally, money paid as salaries and emoluments is largely spent on conspicuous consumption rather than on production and value creation.

Thirdly, there is a large amount of money lying in banks or invested passively that, with better government incentives, could be channeled to drive production and job creation.

One other problem has been that Kenya has not robustly enforced its own policy of “buy Kenyan to build Kenya”, which ideally would set the wheels of industrialisation in higher gear.

Rather, those who land lucrative government tenders and contracts prefer to import ready-made products because it is cheaper to procure such goods from countries where production costs are low.

Whereas this makes sense for individual importers, collectively, it is bad for Kenya’s economy because it translates to exportation of jobs and revenues.

Given this complex background, the fact that now Kenya is spending more on debt repayment than on recurrent expenditure assumes monstrous proportions.

This already discouraging scenario is exacerbated by the fact the government is loading more taxes on a population that one, is earning less and two, is already paying too high taxes in a depressed economy.

Again, the true value of the projects on which the government is spending money may not be felt now.

For instance, it will be a while before the full benefits of the Nairobi expressway are realised, and even when they will be eventually, they might not be in direct monetary terms but in reducing, say, amount of time workers spend on commutes.

This delayed gratification makes it harder for tax payers to appreciate the value of their taxes, since they are paying it in the here and now but fruits take time to ripen. — Mbugua is a Partner and Head of Content at House of Romford. [email protected]

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