Local firms signaled that they were on the edge in the first and second quarters of this year, due to worsening economic conditions driven by subdued government spending, according to the Bank of Botswana’s (BoB) quarterly business survey.
The Bank of Botswana’s survey noted that, consistent with the December 2025 survey results, limited government spending was identified as a major constraint to business operations. This reflects the country’s weakened fiscal position.
The survey also noted that the exchange rate environment was viewed as unfavourable, partly due to adjustment costs and spillover effects associated with the July 2025 exchange rate policy changes.
Firms also expected higher overall cost pressures in the second quarter of 2026 compared to the first quarter, partly because of the war in the Middle East and its effects on commodity prices, supply chains, and overall business operating conditions.
“Furthermore, firms anticipated increases in both lending interest rates and borrowing volumes in the year to March 2027,” the survey stated.
“Nevertheless, firms expect inflation to remain within the 3–6 percent objective range in 2026 and 2027, indicating that inflation expectations remain well anchored.”
In addition, firms expect lending interest rates to increase across all markets—domestic, South Africa, and elsewhere—in the year to March 2027.
According to the Bank of Botswana, this expectation is likely influenced by currently elevated domestic lending rates, amid liquidity distribution challenges in the banking system and weak domestic economic activity.
However, the Bank said only a few firms expect lending interest rates to increase in South Africa. This likely reflects the reduction in the policy (repo) rate in November 2025, which lowered the cost of borrowing in that country.
“Notwithstanding the anticipated rise in lending interest rates, firms also expect borrowing volumes to rise across all markets over the same period, with most firms preferring to borrow domestically,” the BoB noted.
“This increase may in part reflect rising working-capital requirements and liquidity needs, rather than expansionary investment intentions,” the Bank explained.
At the same time, the Bank said that investments and funding requirements associated with the Botswana Economic Transformation Programme (BETP) may also support increased demand for credit.
As a result, the survey indicated that most domestic market-oriented firms prefer to borrow domestically (within Botswana) in the year ending March. This preference reflects continued reliance on domestic credit markets, owing to both structural and practical considerations.
“These firms primarily generate revenues in local currency and operate within Botswana, making domestic borrowing more attractive due to lower currency risks,” the survey stated.
“In addition, local financial institutions are likely to have a better understanding of domestic firms’ operating conditions, enabling comparatively more favourable lending terms and easier access to credit.”
