Businesses Brush Off Higher Rates

Borrowing volumes expected to increase with liquidity needs Botswana Economic Transformation Programme may also engender an increased appetite for borrowing Most of Botswana’s domestically focused and export-oriented firms preferred to borrow locally rather than from South Africa or other external markets in the fourth quarter of 2025, according to the Bank of Botswana’s (BoB) Business Expectations Survey. The findings point to continued reliance on domestic credit markets despite rising lending rates in Botswana. This comes amid tightening liquidity conditions, largely linked to declining diamond sales, the country’s main source of export earnings and government revenue, which has historically supported liquidity in the financial system. The liquidity squeeze has intensified competition for funding among commercial banks, pushing up the cost of funds across the sector. In response, most banks have raised their prime lending rates following the liberalisation of the prime rate regime in recent years. As a result, market lending rates have risen faster than the BoB’s benchmark policy rate. However, after adjusting the policy rate, the central bank instructed commercial banks to suspend any further increases in lending rates. Banks have since adopted strategies to attract lower-cost funding in order to sustain lending. Even with higher rates, firms were not deterred from borrowing, although the survey shows this is not for investment purposes. The survey found that about 50 percent of firms said their choice of credit market was mainly influenced by access to appropriate credit facilities. A further 23 percent cited affordability of credit, while another 23 percent said availability of suitable loans was the key factor. Meanwhile, 4 percent reported that a combination of availability and accessibility shaped their decision. The BoB, however, said firms still continued to prioritise financing business operations from retained earnings, consistent with the previous survey. This was followed by loans and equity. “However, in the fourth quarter of 2025, the proportion of firms that preferred equity financing and loans slightly decreased to 10 percent and 29 percent, from 14 percent and 31 percent, respectively, relative to the previous survey,” the report said. It added that 6 percent of firms preferred a composite source of financing, compared to none recorded in the previous survey. “The preference to use retained earnings as a source of financing was prevalent across most sectors,” the survey said. Some firms in sectors such as Manufacturing, Finance, Professional and Administrative Activities; Retail, Accommodation, Transport and Communication; and Mining and Quarrying showed a higher preference for loans, reflecting sector-specific financing needs and greater engagement with formal credit markets. Firms expect lending interest rates to increase across all markets — domestic, South Africa and elsewhere — in 2026, with the strongest increase anticipated in the domestic market. The survey said this expectation likely reflects higher local lending rates amid liquidity distribution challenges and weak economic activity. By contrast, fewer firms expect lending rates to rise in South Africa, which the BoB attributed to reductions in the policy interest rate (repo rate) in November 2025 that lowered borrowing costs. Despite expectations of rising interest rates, firms also anticipate borrowing volumes will increase across all markets over the same period, with most firms preferring to borrow domestically and in South Africa. “This increase may reflect rising working-capital requirements and liquidity needs rather than expansionary investment intentions,” the survey said, adding that “at the same time, investments and funding requirements associated with the Botswana Economic Transformation Programme may also engender an increased appetite for borrowing.”

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Businesses Brush Off Higher Rates

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