Govt fights to avoid debt trap
Mbongeni Mguni | Wednesday January 28, 2026 06:00
Without meaningful restrictions on spending, government faces an elevated risk of a debt trap over the short to medium term, said technocrats writing in the Budget Strategy Paper released last week.
The officials noted that the country’s fiscal trajectory was skirting close to the debt ceiling limits set by government. The government’s fiscal rules limit debt to 40% of Gross Domestic Product (GDP), being 20% for domestic debt and 20% for external debt.
Total debt peaked at 30% of GDP in September 2025, anchored by domestic debt which has risen sharply from just six percent in 2013-14, to 18% in September 2025.
Government’s total debt stood at P76.7 billion as at September, dominated by local borrowings. Authorities cautioned that this figure does not include arrears owed by government to various suppliers and for which staggered payment arrangements are being concluded.
“To finance the projected fiscal deficit in the 2025-26 financial year, substantial borrowing will be required, comprising P4.7 billion in net domestic issuance and P17.2 billion in net external borrowing,” the Budget Strategy Paper reads. “This is expected to push the debt-to-GDP ratio to an estimated 37.5%. “However, this figure underlies fiscal vulnerabilities linked to the accumulated payment of arrears. “These arrears represent deferred obligations that could significantly widen future deficits and increase debt if financed through borrowing.”
Technocrats said incorporating the arrears and an P11.7 billion financing gap arising from depleted fiscal buffers could push total debt beyond the statutory ceiling of 40%.
The authorities said absent structural fiscal reforms and discipline, public debt is expected to maintain an upward trajectory over the medium term, increasing interest payment burdens and constraining fiscal space for priority spending.
“This underscores the urgent need for enhanced fiscal discipline, including the implementation of cost-containment measures and strict adherence to the fiscal framework. “There is also need to weigh trade-offs between avoiding high-cost borrowing and the macroeconomic risks of accumulating arrears, which can disrupt private sector liquidity and undermine economic activity,” the Budget Strategy Paper reads.
Government’s local borrowing is guided by the P55 billion domestic note issuance programme under which the Bank of Botswana floats bonds and treasury bills every month to raise debt for government from the local capital market.
The interest rates demanded by the market to lend to government have been on the rise, influenced by a sovereign credit ratings downgrade last year and perceptions of the risk associated with government’s weakened fiscal trajectory.
External borrowing is via arrangements with development finance institutions and other multilateral organisations.
As at September 2025, 46% of total disbursed outstanding external debt was owed to the African Development Bank, whilst the International Bank for Reconstruction and Development accounted for 38% of external debt. The OPEC Fund for International Development, and the Japan International Cooperation Agency contributed eight percent and seven percent respectively.
Over the past decade, the country’s finances have weakened due to falling mineral revenues, high spending, depleted reserves and rising public debt levels.
The budget has run a deficit since the 2017-18 financial year and technocrats expect the shortfalls to continue in the medium term, as diamonds continue to underperform, while the fruits of the Botswana Economic Transformation Programme are awaited.