Botswana’s worsening fiscal position is emerging as a growing threat to economic recovery, with the Bank of Botswana warning that rising government borrowing could drain liquidity from the financial system and squeeze credit to businesses.
In its April Monetary Policy Report, the central bank painted a picture of an economy facing pressure from multiple fronts: weak growth, rising inflation, tighter liquidity and an expanding government financing gap.
While public attention has largely focused on inflation and the recent interest rate increase, the deeper concern may lie in the state’s increasing appetite for debt.
The revised 2025/26 budget projects a deficit of P25.5 billion, equivalent to 9.3 percent of GDP, up from the original estimate of P22.1 billion, largely due to weaker mineral revenues as the diamond market remains under pressure. For 2026/27, the deficit is projected at P26.4 billion.
With government investment balances critically low and part of the financing gap still unfunded, authorities are leaning more heavily on borrowing, including domestic debt instruments.
For the central bank, that carries consequences.
The report warns that greater government borrowing could crowd out private sector access to credit at a time when businesses already face tight liquidity and slowing economic activity. Commercial bank credit growth slowed to 2.6 percent in February, down from 5.8 percent a year earlier, suggesting lending appetite is already weakening.
The Bank’s decision to raise the monetary policy rate by 200 basis points to 5.5 percent was partly aimed at improving monetary policy transmission in a strained liquidity environment, not simply containing inflation.
For Botswana’s private sector, the risk is straightforward: as government borrows more to stay afloat, less room may remain for businesses trying to fund expansion, investment and survival.