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Weak shilling leaves Kenyan missions with $5m budget hole

Kenya’s missions abroad incurred foreign exchange losses amounting to Ksh761.58 million ($5.22 million) due to rapid depreciation of the shilling during the 2022/23 financial year, forcing them to abandon some projects.

The auditor-general reports that the losses resulted from differences between the quoted exchange rates by the Central Bank of Kenya and transactions made in the host countries, which was compounded by the shilling freefall during the period.

As a result, the missions’ planned spending could not be met with the budgeted funds, even as the pending bills owed cumulatively by the Foreign and Diaspora Affairs ministry more than doubled to Ksh1.68 billion ($11.5 million).

“A review of ministry financial statements revealed that the missions incurred Ksh761,597,333 on foreign exchange losses due to differences between the official exchange rate and the Central Bank rate and transactions made in the host country currencies,” Auditor-General Nancy Gathungu said in the 2022/23 financial year audit report published last week.

“This negatively affected the liquidity of the missions resulting to non-implementation of planned activities.”

The Kenya shilling recorded a sharp depreciation against major foreign currencies during the period. For instance, the financial year opened with the shilling trading at Ksh117.87 against the dollar, but closed at Ksh140.6, a depreciation of 19.2 percent within the year.

Against the Sterling Pound, the shilling depreciated by 23.9 percent during the period, falling from Ksh142 in July 2022 to Ksh176 in June 2023. Similarly, the shilling slumped by 22 percent against the euro and 10 percent against the Chinese yuan.

Kenya operates 60 diplomatic missions (embassies, high commissions, and consulates) in 55 countries across the globe, and four other permanent missions to the United Nations in New York, Geneva, Nairobi, and Paris.

During the 2022/23 financial year, they were given Ksh12.26 billion ($84 million) through the Ministry of Foreign and Diaspora Affairs, which was, however, short of the budgeted Ksh16 billion ($109.59 million).

Of the Ksh178 million ($1.22 million) collected by the foreign missions as service fees, through appropriations-in-aid, Ksh19 million ($130,136) was lost in unclear circumstances, worsening the cash crunch that faced the diplomatic offices during the period.

The Auditor-General says the disbursements of the allocated funds were also consistently delayed, with the missions receiving them during the last week of every quarter to cover the expenses for the ended period.

“This resulted in delayed payments of foreign service allowance to the staff, payment of office expenses and delay in procurement processes,” Ms Gathungu said.

“In the circumstances, the delayed disbursement impacted negatively on the staff morale and service delivery to the public, and low supplier’s confidence in the Missions.”

The government increased the allocation to the diplomatic missions to Ksh16.67 billion (114.18 million) during the current financial year, but it is unclear whether it will be fully disbursed in the face of the revenue shortfalls in the country.

Source: The East African

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