Borrowing costs emerge as firms’ biggest worry
Lewanika Timothy | Monday August 31, 2026 06:00
The latest Business Expectations Survey by the Bank of Botswana, which sampled more than 100 firms from 13 sectors of the economy, found that firms highlighted the increasing cost of capital and tightening collateral requirements as a major factor that will chokehold growth and dampen economic activity.
Firms in capital intensive industries such as construction and quarrying, retail, transport and communication were found to be pessimistic about business conditions in the short to medium term horizon.
“Cost of finance was cited as the major factor adversely affecting business operations in the second quarter of 2026. “This may be attributed to relatively high borrowing costs, stringent collateral requirements and cautious bank lending practices, all of which may have increased the cost of borrowing,” researchers revealed.
In April, the central bank increased the Monetary Policy Rate (MoPR) by 200 basis points from, while directing commercial banks not to raise their prime lending rates. The move was aimed at strengthening monetary policy transmission and managing liquidity conditions in the banking system, which have been under pressure as weaker diamond revenues and constrained government spending reduced the flow of funds through the economy.
Just this week the National Development Bank (NDB) this week increased its lending rate by 100 basis points, providing a further indication that the cost of capital is rising even as businesses are calling for greater access to finance.
For businesses already grappling with weak demand and slowing economic activity, higher borrowing costs could mean that credit is increasingly used to finance working capital and cash flow requirements rather than new investment and expansion.
While companies expect the cost of borrowing to rise, they also anticipate higher borrowing volumes across all markets, with the domestic market remaining the preferred source of credit.
However, the expected increase in borrowing may not necessarily translate into greater investment and expansion. Instead, the Bank of Botswana said it could reflect increased working capital requirements and the need for companies to manage liquidity as business conditions tighten.
Overall, firms perceived business conditions to be less supportive of economic activity in the second and expect this to persist into the third quarter.
“The negative outlook possibly reflects perceptions of fiscal position for the country, characterised by lower government revenue and constrained cash flows, thereby limiting the pace of government spending. “These conditions largely reflect weaker diamond export earnings relative to the preceding years, which have adversely affected government revenue and domestic liquidity conditions” researchers noted.
In the long run, firms expressed optimism about business conditions in the 12-month period to June 2027 compared to the second and third quarters of 2026.
This improved sentiment was attributed to the anticipated benefits from government initiatives aimed at supporting economic recovery and improving the business environment, including measures and proposals outlined in NDP 12 and BETP.