A parliamentary committee wants the Treasury to reinstate a foreign exchange loss compensation scheme for Kenya’s diplomatic missions abroad to help protect their budgets from the impact of a volatile shilling.
The Defence, Intelligence and Foreign Relations Committee said reinstatement of the foreign exchange stabilisation scheme is critical at this time when most diplomatic missions have come under stress amid the shilling’s woes against major currencies, especially in the last two years.
Budgets of Kenya’s diplomatic missions cumulatively shrunk by Sh3.26 billion in the five financial years to June 2024, amid a weak shilling that significantly lowered the purchasing power of staff in the missions and leaving battling to service rent, pay school fees and buy food.
Kenya’s diplomatic missions received forex loss compensation for many years until the National Treasury scrapped this scheme in 2013, exposing the embassies and consulates to the harsh impact of the weakening shilling.
The shilling suffered serious volatility in the past few years and slid to 161 units to the dollar, 177 units to the euro, and 207 units to the pound in January last year, significantly eroding the budgets of Kenya’s diplomatic missions abroad in the absence of the forex compensation scheme.
“The Ministry of Foreign and Diaspora Affairs should collaborate with the National Treasury to implement foreign exchange stabilisation mechanism to mitigate forex conversion losses impacting embassy operations,” said the committee in the report awaiting adoption by the House.
Budgets for the foreign missions are prepared alongside all other government entities and passed by Parliament. This means that the missions need more Kenya shillings to convert to foreign currency whenever the shilling weakens.
The committee did not give deadlines on when the two ministries should move to reinstate the scheme.
Missions Washington DC, Vienna, New Delhi, London, and Geneva top the list of the embassies and consulates that have taken the worst beating from the forex losses.
For example, the committee report shows that the Kenyan mission in Qatar and the United Arab Emirates took a hit of Sh25 million and Sh18 million respectively in the year to June 2024 due to the weak shilling.
Lack of compensation for the forex losses has been compounded by the rising cost of living in most of the globe’s major cities, further squeezing the spending abilities of the missions and their respective staff.
Kenya has at least 70 diplomatic missions across the globe and the majority of them use rented residences and offices. Missions that have leased properties are grappling with dilapidated offices and residences.
