16 Jul 2026

Botswana's current fiscal crisis reflects a prolonged weakening of fiscal discipline, characterised by repeated budget deficits and rising public debt, following a decline in the country's share of global exports from about 40 per cent to 20 per cent over the past three decades.

World Bank Group Division Director, Ms Satu Kahkonen, said this during the launch of the Botswana Economic Update in Gaborone on Tuesday.

She said the crisis had been exacerbated by the country's small economy and heavy reliance on a single commodity, making it highly vulnerable to external shocks, including the conflict in the Middle East, which continued to weigh on global growth prospects, fuel prices and investor confidence.

"Public debt surged from 22 per cent of GDP to nearly 40 per cent of GDP between 2023 and 2025, prompting an increase in the statutory debt ceiling from 40 per cent of GDP to 60 per cent of GDP in early 2026," she said.

Ms Kahkonen cautioned that unless corrective measures were taken, the increase in public debt would place the country on an unsustainable debt trajectory, a risk already reflected in the sharp rise in domestic interest rates in recent months.

Beyond fiscal adjustment, she said Botswana needed to diversify its export base, which remains heavily dependent on diamonds that account for about 80 per cent of total exports.

She said this would require unlocking private sector potential through reforms aimed at improving the business environment and expanding access to infrastructure and financial services, particularly for new and small businesses.

"This Economic Update argues that Botswana needs to shift its economic model. While this message has been repeated many times in the past, including across multiple government strategies, the urgency of such a shift is now greater than ever," she said.

Ms Kahkonen said fiscal deficits had widened in recent years and, unlike in the past, government could no longer cushion temporary declines in diamond revenues by drawing down fiscal buffers, limiting its ability to implement countercyclical fiscal policy.

She noted that the fiscal outlook remained challenging, with the budget deficit expected to remain high during the 2026/27 financial year due to an expansionary budget combining increased development spending with significant one-off expenditures.

She said financing constraints had become a major risk, as limited depth in the domestic financial market and rising borrowing costs meant budget implementation would increasingly depend on access to affordable external financing.

In the absence of such financing, Ms Kahkonen warned that liquidity constraints could result in under-execution of planned expenditure, a situation already experienced in recent years.

Despite the challenges, she said a modest economic recovery was expected over the next two to three years, driven mainly by a rebound in diamond production from historically low levels.

Economic growth, she said, was projected to recover to about 3.2 per cent in 2026, supported by increased diamond production, although output would remain well below the levels recorded over the past decade.

She added that growth in the non-mining sector was likely to remain subdued due to the fiscal adjustment programme and weak private investment amid a still-challenging business environment.

Over the medium term, Ms Kahkonen said economic growth could average around 3 per cent, supported by gradual improvements in the policy environment and the maturation of investments in renewable energy and base-metal mining, which were expected to stimulate economic activity. ENDS