Botswana’s private sector is expected to face even more challenges in 2026. A new report from Business Monitor International (BMI) warns that increased government borrowing could make it harder for businesses to get loans in an already tight credit market.
The report describes an economy that is having trouble bouncing back after shrinking by about 0.7 percent in 2025. BMI predicts only a small recovery, with growth of 1.5 percent in 2026, due to weak global demand for diamonds, ongoing uncertainty in mining, and rising financial pressures.
While much of the report focuses on the banking sector, the implications extend far beyond bank balance sheets and directly affect businesses, entrepreneurs, and ordinary citizens seeking access to credit.
‘With fiscal buffers eroding and financing requirements increasing, the government is likely to maintain a significant presence in domestic debt markets,’ BMI said.
The report warns that the effects could be serious.
‘This raises the risk of crowding out private sector credit, as banks allocate a larger share of their balance sheets to government securities.’
Put simply, banks might choose to lend more to the government instead of businesses, since government loans are seen as safer and more reliable. This could make it harder for companies to get the money they need to grow or run their operations.
This warning comes when Botswana’s private sector is already in a tough spot. BMI expects household incomes to stay under pressure in 2026, which will lower demand for goods and services. Companies are also likely to delay investments because of the uncertain economy.
‘Corporates are likely to delay investment decisions amid uncertainty,’ the report states, adding that banks will continue prioritising lower-risk lending while maintaining cautious credit standards.
These sentiments come at a time when local economist Dr Keith Jefferis of Econsult has raised similar concerns in his recent reviews. He warned that increased government borrowing could further drain liquidity from the financial sector and crowd out private sector lending. With banks already operating under tighter liquidity conditions and rising credit risk, increased government absorption of available funds could limit credit extension to productive sectors, undermining private-sector-led growth.
The BMI report also points out that rising interest rates are having an impact.
Following a sharp rise in inflation, driven largely by higher global energy prices linked to the ongoing US-Iran conflict, the Bank of Botswana raised its benchmark interest rate by 200 basis points to 5.5 percent in April 2026.
BMI expects inflation to average 9.7 percent this year, well above the central bank’s target range, with another interest rate increase likely before year-end.
This means that loans will become more expensive for both households and businesses.
‘Higher lending rates will suppress credit demand and reduce affordability, particularly among households,’ BMI noted.
Businesses already facing weak sales and higher costs may find it even harder to expand or create jobs if borrowing becomes more expensive.
The banking system is also under pressure because there is still not enough cash available.
Even though the central bank stepped in and the government spent more in 2025, BMI says there are still big problems in the system. These include most deposits being held by a few banks, a reliance on short-term funding, and some banks having much more cash than others.
BMI expects loans to customers to grow by only 4.2 percent in 2026, which is much lower than the 10-year average of 7 percent.
The report is also worried about Botswana’s worsening financial situation. Lower mining income and less money from the Southern African Customs Union are putting more strain on government finances. Public debt has already hit the legal limit of 20 percent of GDP, which means the government has less room to spend and must rely more on borrowing within the country.
BMI notes that government securities already account for around one-fifth of banking sector assets.
‘Further increases would limit the availability of credit to households and businesses, reinforcing the weak credit growth outlook,’ the report warned.
While Botswana’s banks remain well-capitalised and financially stable, BMI cautions that their ability to support economic recovery will become increasingly constrained.
What it means for households, businesses, and banks?
The economy is likely to grow slowly in 2026. Households will have to deal with higher costs of living and borrowing, businesses will struggle to get affordable loans, and banks will be more careful about lending. All of this could slow down economic activity and job growth.
Many people in Botswana may have a tougher year ahead. Higher interest rates will make it more expensive to borrow for homes, cars, and personal needs. At the same time, rising prices will keep pushing up the cost of living, so families will have less buying power. As businesses slow down hiring and investment, there may also be fewer job opportunities.
It may become harder and more expensive for companies to get loans from banks. As the government borrows more, banks might prefer lending to the government since it is seen as a safer bet. This could slow down business growth, reduce investment, and limit job creation, especially for small and medium-sized businesses.
Botswana’s banks are still stable and have enough capital, but they are becoming more careful. With more government borrowing, less cash available, and ongoing uncertainty, banks will probably lend less freely. While banks might gain from holding more government debt, this could mean less support for private businesses and a slower economic recovery overall.
Botswana’s financial sector is at a critical point. Higher interest rates have helped keep deposits stable and support the economy, but they are also making it harder for people and businesses to get loans. At the same time, the government’s need for more money could make cash even tighter and make it even harder for the private sector to borrow.