Debt, Direction and the Second Budget

Economists will be scanning less for grand statements than for clues, particularly on how government intends to fund the pillars it has so confidently outlined. Debt numbers on the strategy paper have caught the eyes of many. Treasury’s strategy paper points to a modest but deliberate easing in the debt-to-GDP ratio, forecast to decline from 37.19 percent in 2025/26 to 34.59 percent by 2028/29. On paper, economists say it is a reassuring trajectory, suggesting fiscal restraint rather than drift. Even with the projected decline, some economists argue that Botswana’s debt burden remains elevated across the Ministry of Finance’s forecast horizon, leaving little room for fiscal slippage should growth disappoint. From this perspective, the downward trajectory is welcome, but hardly decisive. Others are less alarmed. They contend that concerns around Botswana’s public debt are overstated, pointing out that the overall level remains modest, both relative to statutory thresholds and by international comparison. Government data estimate Botswana’s public debt at about 32 percent of GDP as at September 2025, comfortably below the statutory ceiling of 40 percent and well under the 60 percent benchmark set by Southern African Development Community. Economist Keith Jefferis argues that this line of debate misses the real issue. For Botswana, he says, the problem is not the absolute level of public debt, but its direction of travel. Debt that appears sustainable can quickly become otherwise if new borrowing accelerates. “It is worth remembering that the only reason Botswana has relatively low public debt is that years of budget deficits were financed through drawdowns from government savings, rather than borrowing,” Jefferis notes. Those savings, held in the Government Investment Account, are now effectively depleted, although having marginally improved. “Going forward, even a single year of a large budget deficit, say around 9 percent of GDP, would push Botswana beyond its statutory debt limit,” Jefferis said. To finance its projected fiscal deficit in the 2025/26 financial year, government says it will need to lean heavily on new borrowing. The scale of that financing requirement explains the expected step-up in the debt burden, with the debt-to-GDP ratio projected to rise to about 37.5 percent. However, government said this figure underlies fiscal vulnerabilities linked to the accumulated payment of arrears. “These arrears represent deferred obligations that could significantly widen future deficits and increase debt if financed through borrowing,” finance ministry said in the strategy paper. Minister of Transport and Infrastructure Noah Salakae recently disclosed that government owes contractors about P15 billion for road construction and maintenance “This figure seems exceptionally high, and if correct, would indicate an even higher level of arrears across government as a whole,” Jefferis said. Minisitry of finance said incorporating arrears and the P11.7 billion financing gap arising from depleted fiscal buffers could push total debt beyond the statutory ceiling of 40 percent. The International Monetary Fund has responded by urging Botswana to reconsider the rigidity of its debt anchor. It has recommended lifting the public debt limit to 50 percent of GDP from the current 40 percent as a way of easing near-term fiscal strain. But the Fund has been careful to attach conditions. Any relaxation of the ceiling, it argues, should be accompanied by a new fiscal framework, one that includes a credible path to deficit reduction and structural reforms such as a legally binding spending rule to restrain long-term expenditure growth. Financing the budget deficit has become markedly more difficult since government savings were depleted, with domestic borrowing offering little relief. Reliance on bonds and Treasury bills has fallen short of expectations, constrained by tight liquidity conditions in local capital markets. Government concedes that these adverse conditions have weighed heavily on the issuance of its securities. The result has been a faltering domestic funding programme. Since the start of the 2025/26 financial year, the Government Bond Issuance Programme has achieved an allotment rate of just 37 percent, according to the Budget Strategy Paper. Against an annual domestic borrowing target of P10 billion, only P3.1 billion had been raised by December, nine months into the financial year, based on data compiled by economist Jefferis. Uncertainty still surrounds where government will ultimately source the funding needed to close its financing gap, given the tight dynamics in domestic capital markets. What is clearer, however, is the direction of policy intent to be overweight Botswana in terms of debt stock. Jefferis says current indications suggest government is looking to lean heavily on banks and pension funds in the months ahead. “That would, of course, put an intense squeeze on the banking system and its ability to lend,” he warns. “When this was proposed previously in the aftermath of COVID-19, the Bank of Botswana did not approve the plan, because of concerns about the impact on lending to the private sector,” Jefferis said adding that “it will be interesting to see whether BoB takes a different position this time”. There are already signs of a shift. At government’s January auction, the full P5 billion on offer was taken up, ending months of under-allocation and repeated engagement with investors to support demand. Over the medium term, however, the implications are more significant. Government projections show domestic debt rising beyond 20 percent of GDP, reaching an estimated 23.54 percent by 2028/29. With the domestic debt ceiling set at 20 percent, the trajectory raises a pressing question: whether accommodating higher borrowing will require an expansion of the note-borrowing programme. Economists who spoke to this publication say such a move is increasingly likely to be tabled, potentially before April, when government is expected to present its updated borrowing plan to the market. Total domestic debt outstanding stood at P47.1 billion, according to the strategy paper, underscoring how rapidly local markets have become the state’s primary funding backstop. External debt, by contrast, is projected to ease steadily, from 16.58 percent of GDP in 2025/26 to 11.05 percent by 2028/29, as government pivots decisively toward domestic financing. Even so, the retreat from foreign borrowing raises questions of its own. The issue is no longer simply how much it borrows externally, but how. Experts say the structure and purpose of any new external financing, particularly if it comes from development finance institutions, will matter. They wonder: Will borrowing take the form of short-term budget support to plug near-term gaps, or medium- to long-term programme funding, released in tranches and tied to implementation milestones? Ideally, they say such funding would also come with technical support, helping to accelerate execution rather than merely extend fiscal breathing space. As at September 2025, disbursed outstanding external debt stood at P29.61 billion, with the bulk of the exposure almost entirely attributable to multilateral development banks, according to the Ministry of Finance . United States dollar, the single largest source of foreign exposure, made up about 30 percent. Government has acknowledged that the July 2025 adjustments to the pula exchange rate are likely to affect the stock of foreign debt and translate into higher debt-service costs. However, it has sought to downplay the immediate interest-rate risk. Given the heavier weighting of domestic debt in the portfolio, comprising entirely fixed-income instruments and a fixed-rate loan, the overall interest-rate structure, it said, remains skewed towards the fixed end. But debt ratios, like promises, matter less in their direction than in their design. The critical question is not whether debt is falling, but what kind of borrowing is doing the work .

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Debt, Direction and the Second Budget

When Finance Minister Ndaba Gaolathe returns to Parliament to deliver his second budget speech, the critical question is not whether debt is rising or falling, but what kind of borrowing is doing what work, writes KITSO DICKSON

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Debt, Direction and the Second Budget

When Finance Minister Ndaba Gaolathe returns to Parliament to deliver his second budget speech, the critical question is not whether debt is rising or falling, but what kind of borrowing is doing what work, writes KITSO DICKSON

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