Ndaba’s road to recovery through thicket of economic threats

As Finance Minister Ndaba Gaolathe bets on recovery and steers Botswana through its most turbulent economic waters in years, the country is being hit by a convergence of eight economic shocks. GILBERT MANENYE reports After two bruising years of recession, Botswana’s economic story for 2026 was expected to be one of recovery, driven by stronger growth in non-mining sectors and supported by economic diversification efforts under National Development Plan (NDP) 12 and the Botswana Economic Transformation Programme (BETP). While Finance Minister Ndaba Gaolathe is betting on that recovery, official data from the Bank of Botswana, Statistics Botswana, S&amp;P Global and Econsult Botswana point to a different reality: one defined by simultaneous macroeconomic shocks that together represent the most severe convergence of economic risks facing the country in years. On April 30, 2026, the Bank of Botswana’s Monetary Policy Committee took the unusual step of raising the Monetary Policy Rate by 200 basis points, from 3.5 percent to 5.5 percent. In its accompanying statement, the central bank described a domestic economy contracting for a second consecutive year, an inflation trajectory moving sharply above its 3-6 percent objective range, and a global environment dominated by “shifting trade relations, supply chain disruptions, heightened geopolitical tensions and persistent policy uncertainty.” In the same statement, however, the bank acknowledged the Ministry of Finance’s projection of economic recovery in 2026. The contrast between the two positions — one warning of mounting pressure and the other projecting recovery — reflects the uncertainty surrounding Botswana’s economic outlook. A review of economic data examined by the Business Weekly &amp; Review suggests the risks facing Botswana’s economy are compounding rather than easing. THREAT 1: TWO YEARS OF RECESSION — AND A THIRD AT RISK The economy contracted by 0.7 percent in 2025 after shrinking by 2.8 percent in 2024, according to the Bank of Botswana. Econsult Botswana’s Q1 2026 Economic Review, compiled by economist Dr. Keith Jefferis, said: “the main driver of the overall negative growth rate was the diamond sector (mining, cutting &amp; polishing and trading), which contracted by 14.1 percent.” The non-diamond private sector — the engine on which the Ministry of Finance’s recovery scenario depends — grew by just 1.8 percent in 2025, down from 2.4 percent in 2024. According to Jefferis, “many businesses have reported increasingly challenging economic conditions, with limited growth and rising costs.” Econsult’s macroeconomic data table shows real GDP at 2016 prices falling from P204.4 billion in 2023 to P198.7 billion in 2024 and P197.2 billion in 2025. Presenting the 2026 Budget in February, Gaolathe projected a rebound to 3.1 percent growth in 2026, driven by “stronger performance in non-mining sectors, as supported by the implementation of economic diversification initiatives under NDP 12 and BETP.” However, the Bank of Botswana’s April 2026 MPC statement also flagged “downside risks, including livestock disease outbreaks, heightened geopolitical tensions, climate- related shocks and shifting trade patterns.” While the IMF forecast a relatively optimistic 4.7 percent growth rate for Botswana in 2026, largely based on a recovery in diamond production, Jefferis argued the projection now appears ambitious following the outbreak of war in the Middle East. “With the negative impact on the global economy, this forecast now needs to be trimmed,” he said. THREAT 2: STRUCTURAL DECLINE IN THE DIAMOND SECTOR The most significant structural shift in Botswana’s economy has been the collapse in the diamond sector’s contribution to GDP. According to Econsult’s Q1 2026 Review, the diamond sector accounted for 22 percent of GDP in 2022 but had fallen to just 8.5 percent by 2025. Mining’s share of total GDP now stands at 9 percent, while diamond trading contributes 1 percent. Public administration and defence, at 19 percent, is now the single largest sector of the economy. Diamond production contracted by another 15 percent in 2025, falling to 15.5 million carats from a recent peak of 25.1 million carats in 2023. De Beers, in which the Botswana government holds a 15 percent stake and which jointly owns Debswana with government, reported a loss of $511 million in 2025, equivalent to more than P6.8 billion. Anglo American, De Beers’ parent company, reduced the carrying value of De Beers to $2.3 billion in February 2026, marking the third valuation cut in three years. In March, De Beers cut about 30 percent of its global sightholders, dropping more than 20 of its 69 clients effective July 1, 2026. A key structural driver of the deterioration is the rise of lab-grown diamonds. During De Beers’ 2025 results presentation, Executive Vice President of Diamond Trading Paul Rowley said the bridal market — the dominant demand segment for natural diamonds — is increasingly being captured by lab-grown stones. De Beers subsequently reduced its 2026 production guidance to 21-26 million carats. Lucara Diamond’s feasibility study for the Karowe underground project also revealed a 16 percent decline in prices for its most valuable rough diamonds over the two years to September 2025, from $828 per carat in 2023 to $695 per carat. Although Botswana Economic and Financial Statistics for March 2026 showed diamond exports rose 22.8 percent in pula terms in 2025, Jefferis said much of the increase came from the sale of accumulated stockpiles rather than new production. “We estimate around 4 million carats,” he said, describing it as “a welcome drawdown of excessive levels of inventory.” THREAT 3: THE DEBT SPIRAL In late March 2026, Parliament approved legislation raising Botswana’s statutory public debt ceiling from 40 percent of GDP to 60 percent. Gaolathe said the move reflected the reality that “debt levels are expected to increase significantly in order to finance the projected deficit.” The 2026/27 budget projects a deficit of 8.9 percent of GDP, with total spending of P103.6 billion against revenues of P77.2 billion. The resulting financing gap of P26.36 billion is expected to be financed through domestic and external borrowing. However, Gaolathe warned external financing had become increasingly constrained, forcing greater reliance on domestic debt. Public debt and guarantees stood at P90.03 billion as of December 2025, equivalent to about 33 percent of GDP, and are projected to rise to 38.77 percent by March 2026. According to Econsult, the growing concern is not only the level of debt but the cost of servicing it. Botswana’s first 25-year government bond issued in 2018 carried a yield of 5.2 percent. By March 2026, the equivalent bond yield had risen to 13.3 percent. The three-month Treasury bill rate climbed to 10.9 percent from 3.75 percent a year earlier. A five-year loan from Standard Chartered Bank agreed in March 2026 carries an interest rate of 13.7 percent. Econsult estimates public debt could reach 50 percent of GDP by 2027/28 under current trends. “There may not be a debt crisis in this period, but there is certainly a debt problem,” Jefferis said. “With continued budget deficits of this magnitude, after a decade debt would exceed 100 percent of GDP — perhaps even sooner if the government’s borrowing costs continue to rise.” THREAT 4: THE INFLATION SHOCK Inflation stood at 4.2 percent in March 2026, still within the Bank of Botswana’s 3-6 percent target range. However, Econsult warned that the outlook has changed sharply following fuel price increases introduced at the end of March. The Botswana Energy Regulatory Authority increased unleaded petrol prices by P5.05 per litre, diesel by P8.77 and paraffin by P10.55. That translated into increases of 33 percent for petrol, 54 percent for diesel and 81 percent for paraffin. Econsult estimates fuel price increases alone will add four percentage points to inflation in April. The Bank of Botswana now projects inflation to average 8.7 percent during 2026 and remain above target until 2027. According to Jefferis, Botswana’s large geographic size and dependence on road transport make fuel inflation especially severe. “Hence, the impact of fuel price increases on inflation will be large, much larger than in many other countries,” he said. Jefferis added inflation could exceed 10 percent once April figures are released and remain in double digits for the next 12 months, depending on global fuel prices. THREAT 5: THE MIDDLE EAST ENERGY SHOCK The outbreak of the U.S.-Israel-Iran war in February triggered what Jefferis described as “the biggest energy shock to hit the world for 50 years, or more.” Fuel is Botswana’s single largest import category, valued at P16.9 billion in 2025, or about 6 percent of GDP. Econsult estimates that a sustained 50 percent rise in global fuel prices would cost Botswana an additional P8.5 billion over a year, equivalent to roughly 3 percent of GDP. Jefferis said that would widen the trade deficit and significantly reduce foreign exchange reserves. He also warned of possible physical supply disruptions if global fuel flows are interrupted. So far, Botswana’s three fuel supply routes — through South Africa, Walvis Bay in Namibia and Matola in Mozambique — have remained operational. However, Jefferis noted that Botswana’s strategic fuel storage facility at Tshele Hills “has been on the drawing board for at least a decade, but with little progress.” THREAT 6: THE SOVEREIGN DOWNGRADE On March 13, 2026, S&amp;P Global Ratings downgraded Botswana’s long-term sovereign credit rating from BBB to BBB-minus, with a negative outlook. The downgrade followed another cut in September 2025 and left Botswana one notch above sub-investment grade, commonly known as junk status. S&amp;P cited weak global diamond demand, deteriorating fiscal metrics and declining foreign exchange reserves. The agency maintained Botswana’s investment-grade status largely because of the country’s strong institutional framework and long history of prudent resource management. THREAT 7: THE CREDIT AND LIQUIDITY SQUEEZE Econsult data show annual credit growth fell sharply from 7.1 percent in October 2025 to 2.5 percent in January 2026. Household credit growth slowed from 4.4 percent to 1.5 percent, mainly because of weaker mortgage lending. Business credit growth decelerated from 10.5 percent to 4.4 percent over the same period. Jefferis said the slowdown aligned with the Bank of Botswana’s Business Expectations Survey, which showed firms expect rising interest rates. Loan quality is also deteriorating. Total banking sector arrears rose from 4.8 percent of credit in December 2024 to 5.8 percent in December 2025. Household arrears increased from 4.3 percent to 5.5 percent, while business arrears rose from 6.6 percent to 7.1 percent. Bank profitability also weakened, with return on equity before tax falling from about 36 percent in 2024 to 29 percent in 2025. According to Jefferis, high government borrowing costs are now crowding out private sector investment. Government borrowing rates of 10.33 percent for short-term Treasury bills and 13.3 percent for long-term bonds effectively set the floor for private sector borrowing costs. THREAT 8: FOOT-AND-MOUTH DISEASE The outbreak of foot-and-mouth disease in January 2026 has placed severe strain on Botswana’s livestock value chain. Econsult reported live cattle exports fell by 85.6 percent in 2025 after exports were banned. The Bank of Botswana’s April 2026 MPC statement warned that livestock movement restrictions and slaughter controls could increase food inflation. Econsult said the disease had forced restrictions on cattle movement, slaughter and beef exports, negatively affecting the Botswana Meat Commission and cattle farmers. BMC had only recently returned to profitability, posting a P54.3 million profit in 2025 after a P132 million loss in 2024. That recovery is now under threat following Britain’s suspension of imports of fresh bovine meat processed on or after Dec. 30, 2025. The acting minister of lands and agriculture recently said BMC could lose up to 30 percent of its revenue following the suspension of slaughter operations at the Lobatse plant and the Gaborone Multi-Species abattoir. The minister said the shutdown forced BMC to redirect beef exports to lower-value markets outside the European Union, its premium export destination. Before the suspension of operations, BMC had slaughtered 12,291 cattle in 2026, with more than 95 percent intended for the EU market.

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Ndaba’s road to recovery through thicket of economic threats

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