Kenya passed on up to 62 percent of changes in international fuel prices to consumers between February and September this year, revealing higher protections to households and businesses using subsidies and tax cuts when compared to peers like Tanzania and Rwanda.
A new analysis of fuel price adjustments by the International Monetary Fund (IMF) shows that Kenya passed through 52 percent of the changes to landed costs of super petrol to the retail pricing for the product while the pass-through for diesel was higher at 62 percent.
In contrast, Rwanda’s pass-through was recorded at 125 percent for petrol and 111 percent for diesel, while Tanzania had a 67 percent pass-through for petrol prices and 65 percent for diesel, suggesting the former more than matched the changes in the landed cost of fuel in the same period while Tanzania inserted fewer protections than Kenya.
Ethiopia however only passed through 38 percent of landed super petrol costs and 44 percent for diesel, suggesting the country had higher safeguards to protect consumers from costlier fuel.
The analysis by the multilateral lender assesses fuel price adjustments as a percent of the benchmark US-dollar-per-litre-increase for refined-products.
The IMF findings also suggest that Kenya provided greater protections to consumers of super petrol over diesel, despite the latter having greater uses in the economy, across sectors like logistics, agriculture, and electricity generation.
Kenya has deployed a combination of the fuel stabilisation fund, and the reduction of the value added tax (VAT) on petroleum products from 16 percent to eight percent to contain the runaway retail fuel prices.
The stabilisation fund is financed by the petroleum development levy (PDL) which is charged at Sh5.40 for every litre of petrol or diesel sold and Sh0.40 for kerosene.
An analysis of data from the Energy and Petroleum Regulatory Authority (Epra) reveals the lower pass through of landed petrol and diesel costs to consumers, mirroring IMF findings.
The landed cost of petrol and diesel cargoes between January and July rose by 64.6 percent and 36.5 percent respectively, but retail prices in the capital Nairobi rose at a lower 20 and 30.8 percent.
The landed cost of petrol and diesel from January cargoes stood at $576.34 (Sh74,815) per cubic metre and $626.75 (Sh81,358) but rose to $948.92 (Sh123,179) and $855.59 (Sh111,064) in July.
Retail costs for petrol and diesel rose from Sh178.28 per litre and Sh166.54 in the February 15-March 14, 2026, cycle to Sh214.03 and Sh217.86 respectively in the August 15 to September 14,2026 cycle.
Kenya’s fuel prices are anchored on a T+1 import cycle where cargoes ordered in the first month reach the market at the start of month three, implying a lag to changes in current international oil prices.
VAT on both super petrol and diesel was charged at 16 percent in the February/March cycle, while no stabilisation (subsidy) was applied on either product as the Epra review for the period came just before the onset of the US, Israel war on Iran.
The halving of VAT to eight percent was in place during the August/September cycle while a subsidy of Sh8.64 was applied on super petrol.
Diesel consumers paid Sh19.28 more to cross-subside the super petrol prices.
In its review of pump prices for the new October 15 to November 14 cycle last week, Epra did not apply a subsidy on either petrol or diesel, suggesting the depletion of the stabilisation fund, but the VAT cushion remained in place.
Because of the depletion of the stabilisation fund, fuel prices jumped with super petrol costs settling at Sh226.96 in Nairobi while diesel topped Sh227.76 per litre reflecting a lift of Sh12.93 and Sh9.90 per litre.
The IMF has criticised the lack of targeted support to relieve consumers from high fuel prices, arguing that most protections by the 21- countries, analysed in the assessment, have had blanket coverage, benefitting better-off households instead of cushioning the most vulnerable.
IMF argues that more targeted relief measures would impact the most vulnerable consumers while causing less fiscal strain on governments.
‘Rwanda combined substantial price adjustment with monetary tightening and targeted support, while Ethiopia differentiated temporary fuel subsidies by product and customer to contain costs,’ IMF said.
‘Most announced fiscal measures were designed to be temporary, but only one in seven was classified as targeted. Generalised price relief is poorly targeted because better-off households typically receive a lion’s share of benefits.’
IMF says the fiscal cost of the relief measures can displace social spending, which protects vulnerable groups more effectively while funding gaps can result in losses for fuel importers and State-owned utilities, leading to arrears, shortages or rationing.
Last week, the National Assembly voted to extend the reduction of the VAT rate on petroleum products for a further three months, a move expected to deny the exchequer an estimated Sh27 billion.
The government has been losing about Sh9 billion per month from the intervention, first put in place on April 14, 2026, suggesting that the exchequer has already lost about Sh54 billion in revenues so far.
In nine months, the National Treasury stands to lose Sh81 billion in revenues or an estimated 0.45 percent of GDP.
IMF has called for transparency into relief measures aimed at containing runaway fuel prices, arguing that more targeted interventions would be less costly to governments.
The fund’s analysis of intervention measures in 19 countries showed that generalised fuel-price smoothing measures cost up to four percent of GDP while transfers containing the benefit to the poorest 40 percent of the population would cost just 0.5 percent of countries GDPs.
‘Temporary fuel price smoothing, tax relief, and subsidies should be transparently budgeted, capped and time-bound, with credible exit plans. Losses must not accumulate off budget in importers, utilities, or transport companies,’ IMF added.