Botswana’s economy is expected to return to growth this year after two consecutive years of contraction, but rising public debt and widening budget deficits are threatening the country’s long-held reputation for fiscal discipline, Finance Minister Ndaba Gaolathe said on Monday.
Presenting the 2026 budget to parliament, Gaolathe projected economic growth of 3.1 percent this year, compared with an estimated contraction of 0.4 percent in 2025 and a deeper 2.8 percent decline in 2024.
The recovery marks a tentative turnaround for the Southern African nation, long regarded as one of Africa’s most stable and well-managed economies, but one that has been battered by a prolonged slump in the global diamond market.
Diamond Slump Hits Hard
Diamonds remain the backbone of Botswana’s economy, accounting for roughly one-third of government revenue and about 75 percent of foreign exchange earnings. The sector has struggled amid weaker global demand, economic uncertainty in key consumer markets, and the rising popularity of lab-grown diamonds, which have disrupted traditional supply chains and pricing.
The downturn has reduced export receipts, weakened fiscal buffers and limited the government’s ability to fund development without borrowing.
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“The economy has been subjected to sustained external shocks, particularly in the diamond sector,” Gaolathe told lawmakers, underscoring the vulnerability created by Botswana’s dependence on a single commodity.
Deficits Deepen
Despite the projected return to growth, Botswana’s fiscal position is expected to remain under pressure.
Gaolathe said the budget deficit for the fiscal year beginning in April is projected at 26.35 billion pula (US$1.91 billion), equivalent to 8.9 percent of gross domestic product (GDP). That compares with an estimated deficit of 25.48 billion pula in the current fiscal year.
“This reflects a structurally overstretched fiscal framework, in which expenditure commitments persistently exceed available and realistically realisable resources,” the finance minister said.
Spending pressures have been driven by public sector wages, social programmes and infrastructure investment, even as revenue growth has lagged.
Debt Ceiling to Be Breached
As a result of continued borrowing, Botswana’s debt-to-GDP ratio is projected to rise sharply, breaching the country’s statutory debt ceiling of 40 percent of GDP.
Government estimates show debt rising to 38.77 percent of GDP by March 2026, before climbing to 44.66 percent by March 2027.
While the breach could raise concerns among investors and credit rating agencies, Gaolathe argued that maintaining the current ceiling would require drastic fiscal tightening that could damage the fragile recovery.
“While such an increase may generate short-term credibility concerns, these are outweighed by the significantly greater economic risks that would arise from the sharp fiscal consolidation needed to stay within the existing ceiling,” he said.
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Botswana has historically prided itself on prudent debt management, often keeping debt well below legal limits. The projected breach therefore represents a notable shift in fiscal policy.
Diversification Urgency
Economists say the situation highlights the urgency of economic diversification, a long-standing policy objective that has proven difficult to achieve.
Gaolathe told parliament it was critical to accelerate growth in non-mining sectors such as manufacturing, tourism, financial services and agriculture, in order to reduce exposure to commodity cycles.
“The current challenges reinforce the need to broaden the economic base and strengthen non-mining sources of growth,” he said.
The government has pledged to improve the business environment, invest in skills development and support private-sector-led growth, though progress has been gradual.
Balancing Recovery and Credibility
Botswana’s policy challenge now lies in balancing the need to support economic recovery while restoring fiscal sustainability over the medium term.
Analysts note that while Botswana’s debt levels remain modest compared with many African peers, the speed of the increase could test investor confidence if not accompanied by credible plans to boost growth and revenue.
For now, the projected rebound offers cautious optimism. But with diamonds still under pressure and debt climbing beyond legal limits, Botswana faces a defining test of its economic model — one that will determine whether it can sustain growth without undermining the fiscal credibility it has built over decades.
