Treasury Cabinet Secretary John Mbadi has issued a stern warning that the Kenyan shilling could weaken drastically to between Ksh160 and Ksh180 against the U.S. dollar if the government-to-government fuel import arrangement is cancelled. He made the remarks during a church service in Siaya County on Saturday May 23.
Mbadi defended the controversial fuel deal saying it has played a critical role in stabilising fuel supply and shielding the local currency from further depreciation. He cautioned that scrapping the arrangement would trigger severe dollar shortages and pile enormous pressure on the shilling.
“If you don’t have a G-to-G arrangement where payment is deferred even by three months there will be strain on our shilling because the demand for the dollar will be high,” Mbadi warned.
He explained that increased demand for dollars by fuel importers would drive up the exchange rate pushing the shilling from its current level of Ksh129 to dangerous new lows. He dismissed critics of the arrangement saying they were misleading the public on the true nature of Kenya’s fuel crisis.
Mbadi also pushed back against the notion that high fuel prices are a uniquely Kenyan problem. He attributed the crisis to global disruptions in petroleum supply chains caused by the ongoing conflict in the Middle East.
“The problem of fuel is not a Kenyan problem. This is a global problem,” he stated.
The CS said the Middle East war has cut off petroleum supply routes forcing Kenya and many other nations to source fuel from alternative and more distant markets. He disclosed that the longer supply routes have driven up landing costs by 80 per cent significantly raising the price of importing fuel into the country.
To cushion Kenyans from these rising costs the government has pumped more than Ksh14 billion in fuel subsidies in recent months. Mbadi revealed that Ksh6.2 billion was spent in April followed by an additional Ksh5 billion and a further Ksh2.7 billion injected in May to keep pump prices from spiralling out of control.
He urged Kenyans to understand the broader economic forces at play and warned that ending the G-to-G deal without an alternative would make an already difficult situation far worse for ordinary consumers.