Gaolathe defends Pula move, cautions banks
Mbongeni Mguni | Wednesday July 23, 2025 17:45
Addressing Parliament this afternoon, Gaolathe said there was clear evidence that commercial banks were maintaining uncompetitive trading margins and engaging in unreasonable pricing practices, despite the market's foreign exchange availability.
Government recently raised the Pula’s downward rate of crawl downwards, increased banks’ trading margins for foreign currency trade with the Bank of Botswana and raised the threshold that banks can approach the BoB for currency to $5 million from $1 million. The two latter changes are designed to make it more expensive for banks to access foreign currency from the BoB and rather trade amongst themselves, in order to preserve the reserves as the diamond slump has reduced forex inflows.
The moves have ignited price increases by several firms, some in monopoly sectors, as banks have reportedly raised their rates, triggering higher foreign currency prices in the market.
“While the authorities are actively working to address these challenges, we concurrently urge all customers to exercise their power by actively shopping around and negotiating for more competitive foreign exchange rates,” Gaolathe said.
The Vice President added that several measures were being considered to rein in the situation.
“These include enhanced engagement with market participants, the potential introduction of caps on the mark-up applied by commercial banks to their foreign currency trading margins, the potential introduction of asymmetric trading margins for the Bank's own foreign currency operations with commercial banks, and other targeted regulatory measures,” he said.
Gaolathe stressed that despite the price pain triggered by the adjustments to the Pula, the moves were necessary to prevent a foreign currency crisis where the reserves deplete due to the diamond slump, while the economy still requires critical imports.
“Sri Lanka delayed critical currency and reserve reforms and when their reserves ran dry, the country spiralled into a full-blown crisis in 2022. “Fuel stations ran dry, shelves emptied, and confidence in the state evaporated overnight. “The changes are meant to shield this country from a far more devastating outcome where we are not able to pay for imports, a situation where we can’t afford fuel, food, or medicine, where banks run dry and where the poor pay an even higher price. “That will not happen under our watch,” he said.
Botswana’s official foreign exchange reserves, held by the BoB, were last measured at P48.5billion in April, from P67.4 billion a year earlier.