The public accounts committee has warned that 'short term' cuts at the Foreign Office may lead to increased spending in the future.
In a report on the FCO's reductions in its running costs of £100m over the next four years, the cross-party group of MPs said the department "did well to reduce spending so quickly".
This enabled it to live within its budget.
However, many of the spending cuts were short term in nature, and involved simply delaying or stopping some activities, rather than making lasting efficiency improvements.
Around half of the FCO budget is spent in foreign currencies.
As a result of a decline in the value of sterling, in September 2009 it faced an overspend of £91m on its 2009-10 budget (£72m centrally and £18.8m overseas), out of its total budget of £1.6bn.
Margaret Hodge, chair of the PAC, said the Treasury stopped the department managing that risk effectively by, for example, only allowing the FCO to buy foreign currency in advance on one single day each month.
The spending reduction over four years "must represent genuine and long-lasting efficiencies", she said.
"The department needs to evaluate properly where its spending is most effective and select cuts on that basis. The impact of cuts must be closely monitored.
"The FCO wants to raise income and find efficiencies by sharing its overseas offices with other departments, but the high charges set by the FCO have actually led to departments like the UK Border Agency moving out.
"This is completely counter-productive. The department has now developed a new charging agreement and we look forward to seeing whether it is more successful."
Hodge said recent events in the Middle East demonstrate that the FCO cannot always predict where additional resources may need to be directed.
"The department should develop contingency saving measures so that it can respond to unexpected worldwide events without derailing its plans to reduce spending," she added.
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