In 2024, Batswana made the biggest transformation in our country’s 60 year history: removing the BDP and choosing hope and change promised by the UDC. This political change coincided with another structural change which Batswana had been warned about for 30 years but never quite adequately prepared for: a collapse in diamond markets which threw Botswana’s economic status into the abyss. Whilst Batswana were ready to change politically they so far haven’t shown a propensity to change how we run our country economically but it finally feels like we don’t have a choice. It is time for Botswana to change its business model and this 2026 budget provides the perfect opportunity to steer this Titanic away from the economic iceberg threatening our well-being.
Understanding the Problem
Any financial advisor will tell you that budgeting is a simple function of Asset and Liabilities Matching (ALM). This is a fancy phrase used in financial analysis and management which simply means you need to ensure that the money you make is sufficient to take care of the commitments that you have; not just making sure you have enough but also making sure your revenues come at the same time as when your commitments are due. This therefore requires understanding the certainty of when your money is coming and how much of it is coming in order to make decisions on what to commit to. (I had been struggling to capture my thoughts properly for the past few years to explain our issues to the average Motswana until I saw a Linkedin post by Kgomotso Beleme and she captured it perfectly. Credit to her). If you take a household (and the principles are the same), the family has to determine its revenues in order to plan its commitments. Lets take an example of a permanent and pensionable government employee, say a nurse or a teacher who is married to an entrepreneur. The nurse or teacher knows exactly how much they earn and when that salary will come in. The entrepreneur on the other hand does not. Their income amounts and timings are more volatile and less certain. This therefore would mean the family should ordinarily plan using the certain salary for things like rent/mortgage, car payments, school fees, food etc. The entrepreneurs’ income would be taken to savings for a period and then utilized for ‘projects’ as the savings get bigger and bigger. If the family commits too much of the entrepreneur’s expected future earnings to things such as the mortgage payments and school fees and anything goes wrong, the family can find itself having to move out of its repossessed home or be forced to move children to government schools.
Now let’s relate this basic principle to what has happened in Botswana in the past. Most countries fund their budget from taxes, investment returns and borrowing. In the case of Botswana, historically the money we make from our investment in diamonds provided between 30-40% with the balance of our budget coming from tax collections from BURS and our quarterly payments from SACU. In taking the household example, the taxes from BURS and payments from SACU ordinarily should have been treated as the government worker salary with our revenues from our diamond investments being treated as volatile and uncertain. Fortunately for Botswana, unlike most commodity markets, diamonds have been peculiar and not been as volatile and we therefore started to (complacently) view the returns from there like a nurse’s salary. We knew that 10 times a year, De Beers would host diamond sights and on average $200 million dollars would hit the coffers. We budgeted with it, we built our savings and we built our whole way of life. We talked about diversifying, we were warned for decades but we never believed it. In 2008, the financial crisis warned us. We didn’t listen. We ate on savings and pretended everything was normal. Covid sent another warning. Again we didn’t listen. We continued to think it is business as usual (despite Dr Matsheka famously declaring we can’t be business as usual in his 2021 Budget Speech). Nothing changed. We assumed the certainty of diamond revenues we enjoyed for 40 years would continue. It didn’t. And our fiscal and economic state crashed.
So what has to happen?
We all have to agree we cannot carry on with the business-as-usual mentality. Going back to Asset and Liability Matching; we basically have to do a much better job in planning for our revenues. We can’t afford to keep treating diamond revenues as certain. We have to plan for worst case scenario where diamond revenues are between BWP8-10 billion rather than between BWP20-30 billion. Since 2020, most years we pretended diamond revenues would be certain (and were right maybe at best twice out of 6 years) and chose to try to ‘stimulate’ the economy by increased development spending under programs such as the Economic Recovery and Transformation Plan (ERTP) and the Development Manager (DM) models and funded the short fall in budgets by eating away 30 years worth of foreign reserves savings in a couple of years. After depleting the reserves, our next step has been trying to plug these funding deficits with debt and loans. We are therefore committing future generations of Batswana to debts simply because we refuse to adjust our lifestyles.
I am hoping that in the budget of 2026/2027 with the theme ‘New Era of Economic Transformation and Fiscal Prudence’ we will finally see Botswana take the asset and liability approach and correctly plan. In practical terms this implies scaling back the budget expenditures from being in the BWP80 to 90 billions back to mid BWP60 billions to acknowledge your lack of certainty on diamond revenues. As a result you have to defer a lot of development spending i.e. we may have to hold off on new roads, pipelines, schools, hospitals where a clear business case does not exist or where we aren’t able to structure them in a feasible public private partnership. With a current salary bill of BWP35 billion being the largest component of our commitments, we have to freeze salaries for the foreseeable future and may have to have conversations on how to reduce this number significantly. Whilst this is unpopular, we have to acknowledge we are not in 1990-2020 Botswana. We have reached an inflection point and pretending otherwise will simply crash the economy and saddle our future generations with needless debt.
One of the big exercises in ALM is figuring which liabilities are essential and which ones are nice to haves. For example, I believe we can all agree that our health care and education are some of the most precious things to Botswana. They form part of our values and pride but we also have to acknowledge they have deteriorated exponentially in the last 15-20 years. However, we then need to examine other welfare practices we have entrenched and aspire for. Can we continue to spend billions on tertiary education taking our students to some of the universities we are taking them to (especially the questionable ones)? Can we continue and expand bo Ipelegeng? Should we be having means testing for utilization of government schools and hospitals and have anyone on medical aid paying a more cost reflective fee? Or paying a cost reflective fee for education? Can we really increase allowances and build more roads and schools? Can we afford fancy learner management systems or should we be going back to basics and investing on maintaining schools and clinics and ensuring standards are back to pre 2005 times?
I hope to see the upcoming budget reflect real and committed prudence. Budgeting with money we can properly plan for. Cutting back on fancy spending and going back to basics of good health care and education. Reducing the wasteful spending and of course cutting down on procurement wastage and leakages. Planning for the worst and praying diamond revenues come back and then ploughing whatever revenues we get from diamonds back into savings and paying down debts. Exercising restraint for a few years in order to land this plane safely. The Honorable Minister Gaolathe needs to change course of this country and make us all see this country has fundamentally changed. It is unfortunate that all the mistakes of the last 20 years are needing to be corrected by him and most would require going against the UDC manifesto but the reality is there is no opportunity for political expediency. The current governments legacy might not be economic transformation but rather economic stabilization after 20 years of reckless drivers at the wheel. Pretending otherwise is futile for their legacy and the future of this country.