Botswana’s fiscal year 2025/26 debt profile reflects a moderate overall debt-to-GDP ratio of 29 percent (P79 billion), with domestic debt at 18.8 percent of GDP outweighing external debt at 10.22 percent, according to the Financial Stability Report (FSR) for October 2025.
The report indicates an external debt stock of P23.6 billion, overwhelmingly multilateral at 93 percent, with no new disbursements recorded during the period—a sign of a cautious external borrowing stance. However, the maturity structure shows that over 85 percent of external debt has less than 20 years remaining, meaning nearly P10 billion is due within the next decade. The FSR warns that this concentration of short- to medium-term maturities could elevate rollover risks if global financing conditions tighten.
The economy contracted by 2.8 percent in the first quarter of 2025, and growth for the year is now expected to fall below the projected -0.4 percent, largely due to the prolonged downturn in the diamond industry, according to Statistics Botswana and Bank of Botswana (BoB).
To address fiscal challenges, the government has introduced austerity measures, including travel and overtime restrictions, centralised procurement, and wage bill controls, while advancing the Botswana Economic Transformation Programme (BETP) to diversify into tourism, agriculture, manufacturing, and digitalisation. These steps are critical for long-term resilience and highlight the need for a financial system capable of withstanding shocks and supporting economic transformation, the FSR noted.
Global financial conditions add to these challenges. “Heightened market volatility and tighter global liquidity increase Botswana’s vulnerability, given its reliance on diamond exports and the need to raise external financing,” the report said, adding that “the absence of external disbursements and the relatively high interest component of external debt service, at 56 percent, suggest growing cost pressures, especially if concessional financing remains limited.”
Domestic debt totals P49.4 billion, heavily skewed toward bonds (69 percent) and treasury bills (20 percent), with P12.5 billion maturing within one year. The FSR cautioned that this poses liquidity management challenges. “The reliance on short-term instruments and temporary advances from the Bank underscores the need for a more balanced debt strategy,” it said.
The report further highlighted potential stress on the banking sector if government refinancing needs crowd out private credit or if perceptions of sovereign risk deteriorate. To safeguard stability, it recommends anchoring debt strategy in transparency, medium-term fiscal planning, and proactive liability management, particularly as global interest rates and climate-related shocks pose external vulnerabilities.
Despite rising risks, Botswana’s financial system remains broadly stable.
In October 2025, Moody’s downgraded Botswana’s long-term domestic and foreign currency issuer ratings from A3 to Baa1, maintaining a negative outlook. This followed S&P Global Ratings’ September 2025 downgrade of Botswana’s long-term debt rating from BBB+ to BBB, also with a negative outlook. Both agencies cited the structural downturn in the diamond industry—responsible for roughly 30 percent of GDP and 90 percent of exports—as the main driver of deteriorating fiscal and external buffers.
Moody’s highlighted concerns over the depletion of the Government Investment Account, rising debt levels projected to peak at 40 percent of GDP, and limited progress in economic diversification. The negative outlook reflects the risk of further credit deterioration if policy responses remain insufficient.
In this context, the FSR emphasises the importance of continued fiscal prudence, aligning with the Ministry of Finance’s introduction of a three-year Medium-Term Debt Strategy in 2024/25. “The downward revision in ratings reinforces the need to maintain robust institutions and sound policy frameworks that deliver and support macroeconomic stability, economic diversification, and sustainable growth,” the report said.
It added that ongoing structural reforms are necessary to accelerate economic diversification and industrialisation, rebuild fiscal buffers, reduce dependence on commodity-based revenues, enhance fiscal sustainability, and strengthen overall economic resilience.
