The warning was issued during the IMF Spring Meetings in Washington, D.C., shortly after Kenya reduced VAT on petroleum products and introduced additional subsidies to ease the burden on consumers.

According to the IMF, such measures, including cuts on VAT and excise duties, may provide short-term relief but carry significant fiscal costs. 

The institution warned that these interventions could strain national budgets and raise concerns about long-term debt sustainability, especially in economies already facing limited fiscal space.

Era Dabla-Norris noted that while governments worldwide are responding to inflation and high fuel costs, the financial impact of subsidies and price controls remains substantial. 

She emphasized the need for disciplined and balanced approaches to protect households without overburdening public finances.

The remarks come as William Ruto’s administration implements fuel tax reductions, lowering VAT from 16 per cent to 8 per cent, alongside a Ksh6.2 billion subsidy from the Petroleum Development Levy Fund to stabilise pump prices.

Despite these interventions, the IMF stressed that governments must carefully weigh competing priorities, warning that excessive subsidies could create long-term economic challenges even as they cushion citizens in the short term.