Economy braces as pula review date draws near
Mbongeni Mguni | Tuesday November 4, 2025 11:18
The last review, done on July 10, resulted in a faster depreciation of the pula, whilst changes to the central bank’s trading margins for foreign currency with banks kicked off economy-wide price hikes.
Authorities said the measures were critically needed to arrest the decline in the foreign exchange reserves, which defend the value of the pula, and also support export competitiveness to boost forex inflows.
Figures accessed by BusinessWeek show that from the July review, the pula had fallen by 4.75 percent against the US dollar as at Wednesday on the interbank market. On the official market, as maintained by the BoB, the pula actually appreciated by 0.75 percent over the same period.
Vice President and Finance minister, Ndaba Gaolathe, in explaining the review before Parliament in July, said government and the BoB’s research had shown that the pula was overvalued by between five and 10%.
“The joint research by the BoB and the Ministry of Finance indicated that the pula was moderately overvalued by around five to 10% as per the IMF classification of over/undervaluation, meaning that the pula was five to 10% stronger than it should be compared to other currencies,” he said at the time.
Ahead of the December review, prominent economist and former BoB deputy governor, Keith Jefferis, said the pula remained overvalued, as indicated by the amount of foreign currency flowing into the country, versus the amounts flowing out.
Speaking at a Bank Gaborone roundtable on Tuesday, he explained that the difference between the official BoB exchange rate and the market rates was because, under a market-determined exchange rate policy, the export/import imbalance would point to currency depreciation, but the BoB uses a fixed rate policy for the pula.
The July 11 changes, specifically the increase in trading margins at the BoB, were designed to push banks to trade foreign currency amongst themselves, rather than resort to the central bank for their needs, a situation that has seen the interbank rate separate significantly from the official rate.
Jefferis said going forward, there would be a need to again weaken the pula, or run the risk of the declining foreign reserves being unable to defend the local currency’s value.
“Although there's been this de facto devaluation, I would anticipate that we will see further weakening of the pula, but that could happen in two ways, one good and one bad. “It could happen by an accelerated downward rate of the pula, and I would be pushing for an accelerated downward rate to bring the Pula value down, but in a controlled manner. “The bad way is if we dig our heels in and say we're not going to weaken the pula, and also we're not going to do all the other things which are needed to stabilise macroeconomic policies, and the peg breaks overnight. “Then one day the government says we no longer have a pool of baskets, the pula is not determined, and we have a floating currency. “That could be absolute mayhem because who knows where it's going to settle.”
Jefferis said the choice for policymakers was to gradually weaken the pula to support stability or risk an uncontrolled drop where foreign reserves fall below the level where they can support the local currency.
He added that there were other interventions possible to prop up the local currency.
“It depends on a lot of other things, such as if the budget is stabilised, with expenditure cuts, which will help to manage the situation and help to protect the reserves. “Also, if there's recovery in diamonds that will help to protect the reserves, but if the reserves keep dropping at the rate that we've been seeing, the peg is not sustainable,” he said.
Finance ministry senior policy advisor, Naledi Madala, said government would not allow an uncontrolled fall in the pula’s value, describing the July review as an indicator of the painful decisions technocrats were willing to take to preserve the local currency.
“I just want to give an assurance that the other negative scenario is exactly what we are avoiding and it's exactly the reason why we responded the way we did (in July),” she said. “I know it was very hard, it was very unpopular, but if we did not, the rate at which we were losing reserves was going to lead us there, and so it was very important that even as unpalatable as it was, we needed to do it. “The question is if we achieved what we were looking to do in terms of protecting the rate at which the reserves were declining, and yes, we did because we started to see some stability in that aspect. “I can give assurance that the central bank is in total control of this issue.”
The official foreign exchange reserves, as managed by the BoB, were measured at P47.8 billion in July, down from about P65 billion in July 2024. In June, the reserves were measured at about P45 billion.
Much of the decline has been due to low diamond receipts set against the need for imports, as well as government drawing down on its portion of the reserves to support the budget spending.