If Botswana government were to experience a serious financial crisis, would local banks survive? This is the question will be keeping a number of local bankers awake at night, following a warning by international risk analysts, that government debt problem is increasingly becoming a bank problem.
Finance Minister Ndaba Gaolathe’s growing reliance on commercial banks to finance government’s widening fiscal gap is raising concerns that a severe deterioration in Botswana’s public finances could eventually spill over into the banking sector, exposing lenders to losses and threatening financial stability.
International risk analysts Business Monitor International (BMI), said this month that sovereign borrowing, weak credit growth and structural funding vulnerabilities would remain key challenges for Botswana’s banking sector. BMI noted that banks remain well-capitalized, profitable and liquid, but warned that rising government financing needs are creating a more difficult operating environment.
BMI pointed out that the potential danger is the growing sovereign-bank nexus, the financial interdependence between a government and the banks that finance it. If government finances were to deteriorate into a full blown crisis, banks holding substantial amounts of government securities or other sovereign exposures could find themselves caught in the fallout.
In its latest assessment, BMI says Botswana banks are already responding cautiously to weak lending, rising sovereign exposure and funding risks. The concern, is not that Botswana banks are currently failing. It is that their financial health could increasingly become tied to the government’s financial health.
The warning comes as Gaolathe on Thursday asked Parliament to consider a fresh package of Government Bills, including legislation seeking authority to borrow US$270 million (approximately P3.6 billion) from three of the country’s major commercial banks to finance the 2026/2027 budget deficit.
The Syndicated Loan Facility (Loan Authorisation) Bill, 2026 (Bill No. 29 of 2026) seeks parliamentary approval for Government to raise the funds from ABSA Bank Botswana, First National Bank Botswana and Stanbic Bank Botswana.
The latest borrowing proposal comes against a backdrop of repeated approaches by Government to commercial banks for funding. This has raised questions about how far the State can continue leaning on the domestic banking system without increasing systemic risks.
BMI says Botswana’s banks remain fundamentally strong, but warns that their resilience is being tested by growing sovereign exposure, weak lending and funding vulnerabilities.
‘While banks remain well capitalised, profitable and liquid, subdued economic activity and rising government financing needs are contributing to a more challenging operating environment,’ BMI says.
There is already evidence of a crowding our risk against the private sector, as government borrowing is tightening conditions under which private sector credit is available.
The report suggests that the warning is significant because banks are already retreating from traditional lending to businesses and households.
According to BMI, client loan growth fell from an already weak 2.5% year-on-year in January 2026 to minus 0.2% in May, reflecting weak demand for credit amid a difficult economic environment.
At the same time, banks are increasingly placing money in government securities and other liquid assets.
BMI says asset growth has continued to outpace loan growth, with banks increasingly channeling funds into government securities as they prioritise balance-sheet protection over aggressive lending.
This creates a potentially uncomfortable paradox for Botswana’s economy: banks have money, but businesses are struggling to borrow, while Government is increasingly becoming a major destination for that liquidity.
The latest P3.6 billion borrowing request therefore risks further strengthening what BMI calls the ‘sovereign-bank nexus’ or the growing financial interdependence between Government and commercial banks.
BMI notes that the Financial Stability Report has warned of ‘rising sovereign exposures’, persistent liquidity pressures, funding concentration risks and growing interconnectedness between banks and non-bank financial institutions.
The latest borrowing request is also not an isolated development. In March, Gaolathe tabled legislation seeking parliamentary approval to raise up to US$216.67 million, about P3 billion, through another syndicated facility involving ABSA Bank Botswana, First National Bank Botswana and Stanbic Bank Botswana to help finance the national budget.
Earlier this year, Parliament also considered a P750 million loan from Standard Chartered Bank Botswana, with Government saying the facility was urgently required to address a backlog of outstanding Government invoices.
Government has previously tapped commercial-bank financing through facilities including a US$90 million, approximately P1.2 billion, Stanbic Bank Botswana facility, as well as large euro-denominated facilities involving Standard Chartered Bank Botswana.
The succession of borrowing arrangements has intensified concerns that commercial banks could increasingly become an extension of Government’s financing machinery.
BMI says the risks are amplified by Botswana’s deteriorating fiscal position.
It forecasts the budget deficit to widen to 4.7% of GDP in FY2026/27, from an estimated 4.4% in FY2025/26, while public debt is projected to rise to 33.1% of GDP in 2026.
The Government has already proposed increasing the statutory debt ceiling from 40% to 60% of GDP.
BMI says the sovereign-bank relationship is deepening as banks increase their holdings of government securities and participate in public-sector funding initiatives.
‘The FSR continues to warn that the sovereign-bank nexus is deepening,’ the report says.
Yet the banks are not entering this environment from a position of weakness.
Their capital adequacy ratio stood at 21% in the first quarter of 2026, well above the regulatory minimum of 12.5%, while the non-performing loan ratio remained stable at 3.5% in May.
The danger, therefore, is less about an immediate banking collapse and more about the gradual crowding out of private-sector financing and the concentration of financial risk.
BMI expects loan growth to recover to only 5% by the end of 2026, below projected asset growth of 7.3% and deposit growth of 8.3%.
Meanwhile, On its facebook page the ministry said Gaolathe will also move a motion seeking Parliament’s approval to raise the ceiling on the Government Bond Issuance Programme from the current P55 billion to P85 billion.