Govt rejects central bank money creation to fund development push

Government will not fund its economic transformation agenda through central bank money creation, with the finance ministry, central bank and economist Keith Jefferis all rejecting routine monetary financing in favour of borrowing, even as businesses complain of weak liquidity and tighter credit conditions. The Ministry of Finance said borrowing remained the safest way to finance the country’s development ambitions while protecting inflation, investor confidence and the independence of monetary policy.

In written responses to questions from t he Business Weekly & Review , the ministry, through Director of Budget Analysis and Debt Management Seitebaleng Fologang , defended a financing strategy that combines domestic borrowing with concessional and commercial external loans.

The government is seeking to finance a projected P26.35 billion budget deficit while rolling out the Botswana Economic Transformation Programme and National Development Plan 12.

The debate comes as private sector firms complain of weak government spending, tight liquidity and increasingly difficult access to credit.

While the finance ministry, the Bank of Botswana and Jefferis all oppose switching on the printing press to fund development, they differ on why.

For the ministry, the priority is fiscal sustainability. For the central bank, it is preserving confidence in the pula and maintaining price stability. For Jefferis, the financing debate misses the point, with Botswana’s problem lying not in how it funds development but in how it selects and executes public investment.

Their responses amount to one of the clearest public defences yet of Botswana’s longstanding preference for orthodox fiscal and monetary policy, at a time when some economists internationally have argued that governments issuing their own currencies should not rely exclusively on borrowing to finance strategic development.

The finance ministry acknowledged that domestic borrowing can reduce liquidity available to the private sector, but said borrowing was only one of several factors affecting market liquidity and that its financing programme was designed to limit crowding out.

“The Ministry is implementing its domestic borrowing programme in a measured manner, considering prevailing market conditions and the need to minimise the risk of crowding out private sector borrowing,” Fologang said.

The ministry said it was also working to deepen domestic capital markets, broaden the investor base and introduce additional financing instruments to improve long-term funding opportunities for both the public and private sectors.

It also rejected suggestions that fiscal restraint was undermining economic recovery, after businesses in the March 2026 Quarterly Business Expectations Survey cited constrained government spending as one of the main obstacles to growth.

“Persistently high fiscal deficits and rising public debt would ultimately reduce Government’s ability to invest in infrastructure, social services and programmes that support the private sector,” Fologang said.

Asked whether it had conducted any comparative study of the costs of domestic borrowing against limited central bank financing for productive infrastructure and transformation projects, the ministry said it had not.

“No, there has not been a study to such effect,” Fologang said.

Instead, the ministry said it continuously evaluates financing options while recognising that high domestic borrowing can crowd out private credit and that monetary financing carries inflation and macroeconomic stability risks.

The ministry stopped short of ruling out central bank financing in all circumstances, saying carefully governed monetary financing could be considered in exceptional periods of severe economic distress. But it warned that routine reliance on money creation would undermine monetary policy independence, weaken investor confidence, increase inflation risks and put pressure on the exchange rate.

The Bank of Botswana broadly shares that view, although from a different starting point.

Responding to questions about why it has continued issuing Bank of Botswana Certificates while businesses complain about liquidity shortages, the central bank rejected suggestions that it was actively draining money from the economy.

“It is not the Bank that initiates withdrawal and injection of liquidity,” said Seamogano Mosanako, the bank’s head of communications and information services, adding that commercial banks determine whether liquidity is absorbed or injected through their use of monetary policy instruments.

The central bank said Botswana’s banking system still showed uneven liquidity distribution, with some institutions holding surplus funds while others faced temporary shortages. It said BoBCs remained necessary for managing short-term interest rates, supporting bank liquidity management and ensuring the smooth functioning of the financial system.

The bank also pushed back against the suggestion that the government’s domestic borrowing programme would inevitably crowd out private sector lending. While acknowledging tighter liquidity conditions after weaker diamond receipts, it said measures introduced since late 2024, including reserve requirement adjustments and longer-term repurchase agreements, had improved market conditions enough to limit crowding-out risks.

The central bank drew its clearest line on monetary financing, saying that even if current inflation pressures were largely supply-driven, sustained money creation to finance government spending would weaken confidence in price stability, raise inflation expectations and expose the economy to exchange-rate pressure.

Borrowing, by contrast, allows the government to meet financing needs through market mechanisms while leaving the central bank free to manage liquidity independently, it said.

The bank also sought to qualify comparisons with Zimbabwe, saying hyperinflation should not be explained simply by money printing.

“Hyperinflation is not caused by money creation alone,” the bank said, pointing instead to persistent fiscal imbalances, collapsing production, foreign exchange shortages, weak institutions and declining policy credibility, alongside sustained monetary financing, as the combination of factors that can push an economy into hyperinflation.

“The lesson is not that any monetary financing inevitably leads to hyperinflation,” it added. “Rather, unchecked and persistent monetary financing in the absence of appropriate safeguards can have severe economic consequences.”

Jefferis, however, said the more important issue was the quality of Botswana’s public investment rather than how it was financed.

“The challenge is to improve the efficiency of development spending,” he said.

He argued that Botswana already allocates a relatively large share of both GDP and the national budget to development spending by international standards, and that the real constraint was poor project selection rather than lack of financing.

Jefferis was particularly critical of NDP12, saying it lacked a credible macroeconomic and fiscal framework and that projects in the Public Investment Programme had not been subjected to adequate evaluation or prioritisation .

Rather than seeking new financing mechanisms, he said, the government should focus on identifying high-return projects that can be financed within a realistic fiscal envelope consistent with sustainable debt levels and expected revenues.

Asked whether tightly controlled central bank financing should ever be considered, Jefferis said no.

“Borrowing more from the central bank would not address these fundamental problems,” he said.

Taken together, the responses show little appetite for routine monetary financing in Botswana. The finance ministry sees borrowing as the price of fiscal sustainability, the central bank sees it as the anchor of monetary credibility, and Jefferis sees the financing debate as secondary to the more urgent task of improving the quality of public investment.