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Weak shilling eats into budgets of Kenyan missions' by Sh3 billion
The shilling's exchange rate against major global currencies such as the dollar, euro and pound weakened significantly over the years, with the losses peaking in 2023.
A weak shilling has eaten into the budgets of Kenya's diplomatic missions abroad by Sh3.26 billion in the five financial years to June 2024, hitting the spending power of the missions and their staff in the respective countries.
This is based on a document from the Ministry of Foreign and Diaspora Affairs that shows the losses were highest in the year to June 2023 at Sh1.38 billion.
The shilling's exchange rate against major global currencies such as the dollar, euro and pound weakened significantly over the years, with the losses peaking in 2023. This affected the ability of mission staff to pay basic bills such as rent and school fees for their children.
The foreign exchange losses were exacerbated by a decision by the National Treasury to stop compensating missions for foreign exchange losses.
“Several missions have dilapidated buildings due to the high cost of maintenance precipitated by foreign currency losses. Staff in most foreign missions cannot meet basic needs such as rent and school fees,” the ministry says in the review.
“Over the years, the forex losses have had a negative impact on the operations and reputation of the missions.”
The budgets for the missions are drawn up and approved by Parliament along with all other government entities. This means that when the shilling depreciates, the missions need more Kenyan shillings to convert into foreign currency.
Rent and other utilities are priced in the local currency of the host country, meaning that the missions and their staff need more Kenyan shillings to pay the bills.
The shilling slumped to record lows of 185.96 units to the pound, 177.31 units to the euro and 161.53 units to the dollar early last year, exposing traders and government entities to huge forex losses.
In June 2019, the shilling exchanged at 128.24 units to the pound, 115.07 units to the euro and 101.8 units to the dollar, meaning the shilling has lost up to 58 percent against these three currencies over the five years. The biggest loss was against the dollar at 58.6 percent.
The report shows that the hardest hit missions were those in Washington DC, Vienna, New Delhi, London and Geneva.
For years, foreign missions received compensation for forex losses under a budget line called the Forex Loss Assumption Facility. But this stopped in 2013, leaving the missions and their staff to take a hit whenever the shilling depreciated against major global currencies.
Kenya has at least 70 diplomatic missions around the world, most of which use rented residences and offices. Missions that have rented properties are struggling with dilapidated offices and residences.
