A budget on the brink
Mbongeni Mguni | Monday February 16, 2026 16:27
In the last nine financial years, the budget has run consecutive deficits amounting to hundreds of billions of Pula, each one contributing to the draining of government’s savings and necessitating increasing levels of public debt.
The upcoming 2026-27 financial year, which kicks off on April 1, will not be different and is expected to incur a mammoth deficit of P26.4 billion or nearly nine percent of Gross Domestic Product (GDP).
In previous years, Finance Ministry technocrats had the luxury of tapping the then under-utilised (and therefore ‘cheap’) local capital market for debt as well as the cushion of government savings. However, the decade-long downturn in mineral revenues, particularly diamonds, as well as stubbornly high and rising spending patterns, suggest the fiscus is nearing a tipping point.
Since July 2024, a trend has developed where government, via the Bank of Botswana, is financing part of its budget at different times by rolling over its short-term borrowings from the local capital market. Heavy borrowings have been made mainly on a three- and six-month repayment basis, with these payments made via more short-term borrowings which are then repaid the same way.
Finance Ministry draft estimates released alongside the budget speech this week indicate that the same patterns will hold in the upcoming financial year and only strengthen as main revenue streams remain weak or variable.
Draft estimates released this week indicate that the Finance Ministry plans to tap the domestic capital market for P48.2 billion in gross borrowings, paying back P34.1 billion for net debt of P14.1 billion in 2026-27.
In the external market, priced in U.S dollars and carrying an exchange rate risk, government plans to secure gross borrowings of about P15 billion and pay down P2.5 billion for net debt of P12.5 billion.
The hand to mouth situation means each thebe borrowed has to do the work it is sent out to achieve, due to the interest rate expense attached and in the case of US currency, the additional exchange rate risk.
The Finance Ministry’s proposals, however, suggest a continuation of stubbornly high spending on the recurrent side of the budget, without proportional increases on the development side which actually supports job creation.
According to the draft estimates made available this week, despite warnings of drastic spending cuts announced in pre-budget pitso engagements, the recurrent budget is set to grow by 8.5 percent in 2026-27, compared to 2.3 percent for the development budget.
Personal emoluments, a term that covers civil service salaries, wages and allowances, are due to increase to P40.8 billion in 2026-27, from P36.6 billion, while grants to local authorities and subventions to parastatals are steadily robust at P16.13 billion, from P16.17 billion in 2025-26.
The recurrent budget is crucial for government operations and service delivery, while the numbers of civil servants represent 33 percent of total employment figures in the country, a key demographic supporting demand for goods and services in the country.
However, as institutions such as the IMF have noted frequently over the years, the size of government is inordinately large for a population of 2.3 million and weighs on taxpayers, while also denying the private sector the opportunity to thrive.
From a bird’s eye view, or statistically, from each pula in debt borrowed by government in the upcoming financial year, 77 thebe will go towards the recurrent budget and the balance towards the development budget, a mismatch technocrat have fought against over the decades.
With the recurrent budget bursting at the seams and revenues still under strain, each thebe borrowed as well as its interest and exchange rate cost, becomes quite sensitive, a fact acknowledged by Finance Minister, Ndaba Gaolathe, on Monday.
“Government will pursue a more strategic and targeted approach, one that identifies and eliminates inefficiencies, reallocates resources where conditions allow and ensures that every Pula delivers measurable economic and social returns,” he said.
Besides the continuation of cost-containment in certain segments of the recurrent budget, Gaolathe announced the rollout of a national e-Procurement system to standardise and digitise procurement processes across government, “reducing cycle times and improving competition and compliance”.
The Finance Ministry is also introducing mid-year spending reviews, on top of reforms to the Public Investment Management which have seen improvements on project appraisal, selection and execution.
While he was solemn in the need for drastic spending cuts prior to the budget speech, on Monday, Gaolathe said there were trade-offs to be made.
“The solution is not a blanket spending cut,” he said. “International experience shows that across-the-board reductions can disrupt essential services, undermine efficiency and choke economic growth.”
For investors, who include those lending money to government both locally and internationally, there will be some concerns. The figures proposed for the 2026-27 break at least two fiscal rules set by government itself. One is a rule limiting the deficit to four percent of GDP and another is the possibility that debt to GDP will soar to 44.7 percent by the end of the 2026-27, above the 40%/GDP limit.
Even though the rules are set by government itself, investors and financiers view them as signals of government’s inability to adhere to commitments and fiscal discipline.
The refinancing or rolling over of debt and uncertain outlook for key revenue drivers, as well as the added weight government is applying to the capital market due to the higher deficit, will likely result in additional debt funding costs for government in 2026-27.
This, again, underscores the consequence of each thebe borrowed and each thebe spent.