New financial year: New risks, new opportunities
Mbongeni Mguni | Tuesday March 24, 2026 08:56
The start of the new financial year on April 1 marks a pivotal cycle for government and the broader economy, navigating the cost of delivering public services, the burden of rising debt and the need to reignite growth.
The climate is supported by green shoots of recovery in some segments of the diamond market, as well as the associated accelerated efforts to stimulate demand for the stones. New revenue lines are also strengthening in base metals, specifically copper, whose exports in 2025 soared beyond P11 billion for the first time, providing a timely injection for the foreign reserves as well as tax and royalty receipts for government.
Tourism as well is providing useful support in terms of forex receipts, employment and broader diversification, with several new high-end establishments and expansions scheduled this year. Wilderness Safaris, one of the major players, recently revealed that in 2025, the group generated more than P700 million in foreign exchange for Botswana, “reinforcing tourism's position as one of the country's most important sources of revenue, and demonstrating the economic weight of high-value conservation tourism”.
Set against these, however, is the uncertainty of a solid recovery in diamonds, the growing possibility of escalating inflation due to the Middle East conflict and the rising costs that government will have to meet to access debt this year.
The latter factor was confirmed last week when credit ratings, S&P again downgraded the country’s sovereign credit ratings, a decision that means government will have to pay higher costs to access debt locally and externally.
Draft estimates released recently 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.
While efforts continue to swing towards a private sector led-economy, government remains central to the economy. Its ability to purchase products and services, pay its bills, finance local authorities and their programmes as well as support civil service salaries and their commitments, anchors economic activity.
It is also the reason why, despite the growing positivity in the economy after two successive years of contraction, recovery depends on a trajectory towards stability in public finances, which are still the pillar of the non-diamond economy.
S&P’s downgrade, as inevitable as it was, makes the path to fiscal stability more difficult for government, particularly as authorities eschew the sudden shocks they believe can occur from spending cuts.
“The solution is not a blanket spending cut,” Finance Minister and Vice President, Ndaba Gaolathe said recently. “International experience shows that across-the-board reductions can disrupt essential services, undermine efficiency and choke economic growth.”
In downgrading Botswana, S&P cited the prolonged diamond downturn and a structural weakness in the fiscus “for longer than we previously expected”.
“Barring a significant policy adjustment or a strong recovery in global diamond demand, we project Botswana will post sizable fiscal deficits through (to) 2029, putting further pressures on debt metrics,” the S&P researchers said.
In past years, economic planners would have taken this advice without flinching. However, declining mineral revenues in the last decade, stubbornly high public spending, coupled with shocks such as COVID-19, have drained the country’s reserves and forced much of the budget deficit to be sourced from increasingly expensive debt.
While the ratios in terms of debt to GDP remain low by regional and African standards, analysts are concerned about the trajectory and particularly hard-currency debt which carries a foreign exchange risk for an economy whose main export commodity is yet to recover.
Reading between the lines of the notes and documents issued by the Finance Ministry, it would appear authorities are prepared to bear with higher public debt on a short-term basis, while banking on the Botswana Economic Transformation Programme (BETP) to provide longer term recovery and growth.
The ten-year, P514 billion programme housing 180 projects mainly to be financed by private capital, was developed with the assistance of Malaysian experts and represents government’s main push for rapid economic transformation.
Moody’s, another credit ratings agency, also released an assessment at the same time as S&P and appeared to strike a more positive note, based on the BETP. Moody’s assessment was not a credit ratings action however.
“Establishing a track record of effective fiscal consolidation and affordable domestic credit access would support a stabilisation of the outlook,” Moody’s researchers said. “Economic, export and fiscal diversification - through the BETP, which focuses on developing a strong domestic private sector, implementing structural reforms, and reducing reliance on volatile SACU revenues - could eventually improve the rating.”
S&P is forecasting 2.5 percent growth for Botswana this year, while Moody’s has projected three percent, a figure closer to government’s own expectation of 3.1 percent.
“Under our baseline, Botswana's economic growth will rebound to around 3% in 2026 as the diamond sector stabilises and early diversification projects start to materialise,” Moody’s researchers said. “A gradual recovery in the diamond sector should also support the current account and foreign-exchange reserves.”
For Gaolathe, while government is sensitive to the trajectory of public debt, pursuing an immediate return to a balanced budget would be “unrealistic and would require drastic, measures that could undermine economic and social stability”.
“A rigid insistence on immediate fiscal balance would not constitute prudence but would risk deepening economic contraction. “When revenues decline due to external shocks, government has two options, to either withdraw spending abruptly thereby intensifying recessionary pressures or apply a balanced calibrated counter-cyclical policy to stabilise the economy while structural reforms take effect,” he told legislators recently.
The Finance Minister, rather, is pursuing an approach where the country expands its export earnings beyond minerals by broadening its productive base and strengthening non-mineral exports to stabilise revenue flows and reduce future deficits. This is what the BETP aims to do, he says.
“BETP is the tool of delivery for 186 projects across six economic priorities and three social sectors, with the potential to realise P514 billion in cumulative investment and create 512,000 jobs by 2036. “This is how we build a broader tax base without choking the economy. More exports, more value addition, more productivity and more jobs.”
All eyes are on the financial cycle that starts on April 1 to see how government, the private sector and the broader economy navigates the risks and opportunities.