EVALUATION OF THE ECONOMIC AND FISCAL IMPACTS OF GOVERNMENT SUBSIDIES IN KENYA: A CASE FOR POLICY REFORM

Abstract

This paper critically appraises the fiscal and economic implications of government subsidies in Kenya in respect to their role in economic stagnation and the controversy surrounding it. Recent economic hardships characterized by inflation and massive public debt forced the new Kenyan administration to revoke subsidies on petroleum and maize flour, arguing that they were unsustainable. Such a policy reversal immediately triggered public demonstrations and political outcry, suggesting deep-seated dissatisfaction with the high cost of living. Grounded on empirical analysis and data anchored in the same, this examine evaluates short-term benefits underwriting programs against long-term economic distortions and traces historical and current impacts of subsidies. Inefficiency, corruption, and fiscal mismanagement underpin the regime of subsidies that have seen once-promising state economies now spiral downwards. Stagnation rather than relief emanates from this predicament in Kenya. It is to this end, therefore, that recommendations are made to the effectiveness and efficiency of the subsidies, with alternatives that can bring about economic stability and growth without extra fiscal burdens. The current study adds to the growing literature in areas of fiscal policy and economic management with the developing countries, thus, producing very important insights for upcoming policy decisions within Kenya and other related economies.