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From Diamond boom to Fiscal Strain

Botswana’s diamond-driven prosperity shows signs of erosion Sluggish growth and expanding deficits raise fiscal concerns Botswana’s economy is navigating one of its most formidable challenges in recent memory, as subdued diamond markets, decelerating growth, and mounting fiscal pressures converge to strain public finances, according to the latest Budget Strategy Paper and the February 2025 Monetary Policy Statement. While global economic expansion remains relatively stable, domestic conditions have deteriorated markedly, compelling the government to increasingly depend on borrowing to finance widening budget deficits. On a global scale, economic growth is projected to remain modest at 3.2 percent for both 2024 and 2025, slightly down from 3.3 percent in 2023. Advanced economies are expected to register growth of 1.8 percent, whereas emerging markets and developing economies are forecast to expand by 4.2 percent, a decline from 4.4 percent the previous year. Sub-Saharan Africa is anticipated to grow by 3.6 percent in 2024, with a recovery to 4.2 percent in 2025. In this context, Botswana’s economy has underperformed, underscoring its vulnerability to external shocks. Following a robust 5.5 percent growth in 2022, Botswana’s economy slowed to 2.7 percent in 2023, primarily due to weakened diamond trade coupled with constraints in the water and electricity sectors. The downturn intensified in 2024, with the economy contracting by an average of 2.9 percent in the first half of the year compared to a 4.3 percent contraction over the same period in 2023. The Ministry of Finance now projects a contraction of 1.7 percent for 2024, a stark revision from the 4.2 percent growth forecast made earlier in the year. Authorities anticipate that the non-mining sectors will provide some cushioning against the downturn, with a modest rebound expected in 2025. Diamonds, the cornerstone of Botswana’s economic framework, remain the primary source of fiscal strain. Diamond sales declined in 2024 relative to 2023, with production dropping from 18.5 million carats in Q3 2023 to 13.7 million carats in the same quarter of 2024. The contraction in the global diamond market has exerted significant pressure on export revenues, government income, and foreign exchange inflows. Consequently, Botswana’s balance of payments swung from a surplus of P5.8 billion in 2023 to a deficit of P5.8 billion in 2024, while foreign exchange reserves dwindled from P63.7 billion in December 2023 to P53.6 billion by November 2024. Social indicators continue to raise concerns despite long-term improvements. Unemployment increased from 25.4 percent in 2022 to 27.6 percent in 2024, highlighting the economy’s limited capacity to generate employment amid the downturn. Although poverty has declined significantly over decades, inequality remains entrenched, with a Gini coefficient exceeding 50, reflecting a persistent uneven distribution of economic gains. On the fiscal front, government expenditures continue to outstrip revenue collections. In the 2023/24 fiscal year, total revenues and grants amounted to P73.76 billion against expenditures of P85.49 billion, resulting in a deficit of P11.73 billion. Recurrent expenditures reached P64.90 billion, while development spending accounted for P20.50 billion. During the first half of the 2024/25 fiscal year, a deficit of P4.2 billion, equivalent to 1.52 percent of GDP—was recorded, underscoring elevated spending amid subdued mineral revenues. Looking forward, total revenues and grants for 2025/26 are projected at P85.4 billion, while expenditures are expected to climb to P96.7 billion, yielding an anticipated deficit of P11.3 billion. Mineral revenues are forecast at P17.2 billion, with non-mineral income taxes contributing P23.6 billion. Meanwhile, SACU receipts are expected to decline to P23.3 billion, imposing additional strain on the fiscal position. To bridge the financing gap, the government plans to draw on both domestic and external borrowing. As of September 2024, total public debt stood at P70.5 billion, representing 25.5 percent of GDP, with P27.2 billion owed to external creditors and P43.2 billion to domestic lenders. While debt levels remain within statutory limits, authorities caution that risks are mounting. The International Monetary Fund (IMF) characterizes Botswana’s situation as a “critical juncture,” warning that years of eroding fiscal and external buffers, now exacerbated by a protracted slump in global diamond demand, have left the economy increasingly vulnerable to shocks. The IMF projects continued economic contraction in 2025 as diamond production declines further and non-mineral activity remains sluggish, while youth unemployment remains persistently high. Despite low inflation, the IMF stresses that weak growth, expanding deficits, and dwindling reserves highlight the urgent need for decisive policy interventions to stabilize the economy. According to the IMF, Botswana’s fiscal deterioration is progressing faster than anticipated, with the budget deficit expected to exceed 8 percent of GDP this year despite initial austerity efforts. Public debt, though currently below statutory ceilings, risks rising sharply absent further fiscal consolidation, potentially nearing 60 percent of GDP by 2030 under the baseline scenario. The Fund cautions that ongoing weakness in diamond exports will sustain current account deficits over the medium term, accelerating the depletion of international reserves and eroding the macroeconomic buffers that once shielded the economy from external shocks. The IMF urges the government to embark on a bold and well-sequenced reform agenda centered on fiscal consolidation, tighter monetary policy to support the crawling peg exchange rate, and deep structural reforms aimed at unlocking private-sector-led growth. Priority measures include broadening the tax base, reducing the public wage bill, enhancing the targeting of social assistance programs, strengthening governance of state-owned enterprises, and addressing persistent investment bottlenecks such as limited access to SME credit, labor market rigidities, and land ownership constraints. While initiatives like the Botswana Economic Transformation Programme and the recently established sovereign wealth fund are positive developments, the IMF emphasizes that without swift and sustained implementation, Botswana risks enduring a prolonged period of stagnating growth, escalating debt, and diminished economic resilience. Post Views: 136

admin Published: January 21, 2026 | Updated: January 21, 2026 5 minutes read

Botswana’s diamond-driven prosperity shows signs of erosion
Sluggish growth and expanding deficits raise fiscal concerns

Botswana’s economy is navigating one of its most formidable challenges in recent memory, as subdued diamond markets, decelerating growth, and mounting fiscal pressures converge to strain public finances, according to the latest Budget Strategy Paper and the February 2025 Monetary Policy Statement. While global economic expansion remains relatively stable, domestic conditions have deteriorated markedly, compelling the government to increasingly depend on borrowing to finance widening budget deficits.

On a global scale, economic growth is projected to remain modest at 3.2 percent for both 2024 and 2025, slightly down from 3.3 percent in 2023. Advanced economies are expected to register growth of 1.8 percent, whereas emerging markets and developing economies are forecast to expand by 4.2 percent, a decline from 4.4 percent the previous year. Sub-Saharan Africa is anticipated to grow by 3.6 percent in 2024, with a recovery to 4.2 percent in 2025. In this context, Botswana’s economy has underperformed, underscoring its vulnerability to external shocks.

Following a robust 5.5 percent growth in 2022, Botswana’s economy slowed to 2.7 percent in 2023, primarily due to weakened diamond trade coupled with constraints in the water and electricity sectors. The downturn intensified in 2024, with the economy contracting by an average of 2.9 percent in the first half of the year compared to a 4.3 percent contraction over the same period in 2023. The Ministry of Finance now projects a contraction of 1.7 percent for 2024, a stark revision from the 4.2 percent growth forecast made earlier in the year. Authorities anticipate that the non-mining sectors will provide some cushioning against the downturn, with a modest rebound expected in 2025.

Diamonds, the cornerstone of Botswana’s economic framework, remain the primary source of fiscal strain. Diamond sales declined in 2024 relative to 2023, with production dropping from 18.5 million carats in Q3 2023 to 13.7 million carats in the same quarter of 2024. The contraction in the global diamond market has exerted significant pressure on export revenues, government income, and foreign exchange inflows. Consequently, Botswana’s balance of payments swung from a surplus of P5.8 billion in 2023 to a deficit of P5.8 billion in 2024, while foreign exchange reserves dwindled from P63.7 billion in December 2023 to P53.6 billion by November 2024.

Social indicators continue to raise concerns despite long-term improvements. Unemployment increased from 25.4 percent in 2022 to 27.6 percent in 2024, highlighting the economy’s limited capacity to generate employment amid the downturn. Although poverty has declined significantly over decades, inequality remains entrenched, with a Gini coefficient exceeding 50, reflecting a persistent uneven distribution of economic gains.

On the fiscal front, government expenditures continue to outstrip revenue collections. In the 2023/24 fiscal year, total revenues and grants amounted to P73.76 billion against expenditures of P85.49 billion, resulting in a deficit of P11.73 billion. Recurrent expenditures reached P64.90 billion, while development spending accounted for P20.50 billion. During the first half of the 2024/25 fiscal year, a deficit of P4.2 billion, equivalent to 1.52 percent of GDP—was recorded, underscoring elevated spending amid subdued mineral revenues.

Looking forward, total revenues and grants for 2025/26 are projected at P85.4 billion, while expenditures are expected to climb to P96.7 billion, yielding an anticipated deficit of P11.3 billion. Mineral revenues are forecast at P17.2 billion, with non-mineral income taxes contributing P23.6 billion. Meanwhile, SACU receipts are expected to decline to P23.3 billion, imposing additional strain on the fiscal position.

To bridge the financing gap, the government plans to draw on both domestic and external borrowing. As of September 2024, total public debt stood at P70.5 billion, representing 25.5 percent of GDP, with P27.2 billion owed to external creditors and P43.2 billion to domestic lenders. While debt levels remain within statutory limits, authorities caution that risks are mounting.

The International Monetary Fund (IMF) characterizes Botswana’s situation as a “critical juncture,” warning that years of eroding fiscal and external buffers, now exacerbated by a protracted slump in global diamond demand, have left the economy increasingly vulnerable to shocks. The IMF projects continued economic contraction in 2025 as diamond production declines further and non-mineral activity remains sluggish, while youth unemployment remains persistently high. Despite low inflation, the IMF stresses that weak growth, expanding deficits, and dwindling reserves highlight the urgent need for decisive policy interventions to stabilize the economy.

According to the IMF, Botswana’s fiscal deterioration is progressing faster than anticipated, with the budget deficit expected to exceed 8 percent of GDP this year despite initial austerity efforts. Public debt, though currently below statutory ceilings, risks rising sharply absent further fiscal consolidation, potentially nearing 60 percent of GDP by 2030 under the baseline scenario. The Fund cautions that ongoing weakness in diamond exports will sustain current account deficits over the medium term, accelerating the depletion of international reserves and eroding the macroeconomic buffers that once shielded the economy from external shocks.

The IMF urges the government to embark on a bold and well-sequenced reform agenda centered on fiscal consolidation, tighter monetary policy to support the crawling peg exchange rate, and deep structural reforms aimed at unlocking private-sector-led growth. Priority measures include broadening the tax base, reducing the public wage bill, enhancing the targeting of social assistance programs, strengthening governance of state-owned enterprises, and addressing persistent investment bottlenecks such as limited access to SME credit, labor market rigidities, and land ownership constraints. While initiatives like the Botswana Economic Transformation Programme and the recently established sovereign wealth fund are positive developments, the IMF emphasizes that without swift and sustained implementation, Botswana risks enduring a prolonged period of stagnating growth, escalating debt, and diminished economic resilience.

Post Views: 136