IMF Urges Kenya to Replace Fuel Subsidies With Direct Cash Support

By Benadeta Mwaura - Reporter

Kenya, May 28, 2026 - The International Monetary Fund (IMF) has advised the Kenyan government to gradually move away from broad fuel subsidies and instead adopt targeted cash support programs aimed at protecting vulnerable households from rising living costs.

IMF Managing Director Kristalina Georgieva cautioned that sustained energy price increases are already squeezing households and businesses, especially in import-dependent economies like Kenya.

“Sustained energy price surges can sharply reduce household purchasing power, which hurts poorer families most and strains businesses,” Georgieva warned.

The IMF argues that fuel subsidies often end up benefiting wealthier consumers more than low-income families, while also placing significant pressure on public finances.

The recommendation comes at a time when Kenya continues battling high debt servicing costs, fiscal pressure and persistent concerns over the rising cost of living.

Fuel prices remain one of the most politically sensitive issues in the country because they directly affect transport costs, food prices, electricity production and overall inflation.

For years, Kenya has periodically used subsidies to cushion consumers from sharp increases in global oil prices, especially during international crises such as the Russia-Ukraine war and the recent Middle East tensions involving Iran and Israel.

However, the IMF now says such blanket subsidies are expensive, inefficient and difficult to sustain in the long term.

Instead, the global lender is pushing for what it calls “targeted social protection,” essentially direct cash transfers to vulnerable groups rather than subsidizing fuel prices for the entire population.

The idea behind this model is simple: Rather than lowering fuel prices for everyone, including wealthy motorists and large corporations, the government would identify vulnerable households and provide them with direct financial support to help absorb rising costs.

The IMF believes this approach would reduce pressure on the national budget while ensuring assistance reaches those most affected by economic shocks.

But in Kenya, the proposal is likely to trigger mixed reactions.

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For many wananchi, fuel prices are not just an economic issue; they are a survival issue.

Every increase at the pump quickly spreads across the economy, Matatu fares rise, food becomes more expensive, electricity costs increase, and small businesses struggle to cope.

Critics of subsidy removal often argue that cash transfer systems in Kenya remain inconsistent, poorly targeted and vulnerable to corruption or exclusion errors.

Others fear that once subsidies are removed, fuel prices could spiral further beyond the reach of ordinary citizens already struggling with inflation, stagnant incomes and increasing taxation under the proposed Finance Bill 2026.

The debate also exposes a larger problem facing Kenya’s economy today.

The government is caught between two difficult realities, the need to reduce spending and stabilize public debt on one hand, and the growing public anger over the cost of living on the other.

Kenya’s public debt is now nearing KSh13 trillion, with debt servicing consuming a large portion of government revenue annually.

That fiscal pressure has increasingly pushed the government toward tax reforms, subsidy reviews and spending cuts as it works closely with lenders such as the IMF and World Bank.

Still, fuel remains one of the most emotionally charged commodities in Kenya because it affects almost every aspect of daily life.

And for ordinary Kenyans already feeling financially exhausted, the possibility of reduced fuel subsidies raises one painful question, If fuel prices rise further, how exactly are people expected to survive?