Unsecured borrowing fuels household debt rise

* Household debt grew 6.2% in March 2025, driven by personal loans Botswana’s household debt rose by 6.2 percent in March 2025, driven largely by a surge in unsecured personal loans, according to the Bank of Botswana’s May 2025 Financial Stability Report , currently under review.

The central bank said personal loans accounted for 4.2 percentage points of the overall increase, with other loan categories making up the remaining two percentage points.

The report noted that household borrowing continues to be dominated by public sector employees, aided by payroll deduction arrangements. While this setup improves repayment and recovery rates, the central bank warned that tightening fiscal conditions may complicate how banks manage these loans under expected credit loss models.

“In addition, failure by the government to process timely third-party payments amid growing fiscal pressures could disrupt banks’ day-to-day operations, including liquidity management,” the report said.

The BoB cautioned that the dominance of unsecured lending presents structural risks. In the event of severe fiscal distress or payment delays, the system could be vulnerable to amplified credit losses.

However, the report also noted that households remain net savers when factoring in mandatory pension contributions and long-term asset holdings.

“Pension assets play a key role in supporting mortgage relief under the Retirement Funds Act of 2022,” the report said. “They also enhance household wealth and long-term financial security.”

The net worth of households as a share of GDP increased to 56 percent in the fourth quarter of 2024, up from 51.4 percent in the same period in 2023. The rise reflects stronger household balance sheets relative to the overall economy.

Economist warns of rising financial stress

Independent economist Lame Bothata said the debt trend is troubling, especially for low-income earners struggling under economic strain.

“The rise in household debt shows workers are under pressure to service their loans, which have become more expensive after recent interest rate hikes by commercial banks,” said Bothata .

He added that many households are relying heavily on unsecured credit to cope with rising living costs — a short-term fix that often leads to long-term financial distress.