Deficit narrows sharply as economy finds its footing
Lewanika Timothy | Monday September 28, 2026 10:16
A preliminary outlook prepared by the Ministry in September now estimates the deficit at P9.3 billion, equivalent to 3.1 percent of gross domestic product (GDP), compared with the P26.4 billion, or 8.9 percent of GDP, forecast in February.
The P17.09 billion improvement has been driven by stronger than expected government revenue and tighter expenditure controls.
Total revenue was revised upwards by P8.1 billion, largely due to a windfall income from the Bank of Botswana.
Government also recorded a P2.5 billion budget surplus as at June 2026, equivalent to 0.85% of GDP, strengthening hopes that the country could emerge from the worst of the fiscal pressures caused by the prolonged diamond-market downturn.
Finance Minister and Vice President, Ndaba Gaolathe, said the new numbers are encouraging, although the final position would depend on continued expenditure discipline during the remainder of the financial year.
“The original 2026-27 budget projected a deficit of 26.4 billion equivalent to 8.9 percent of GDP a preliminary revised outlook prepared by the Ministry of Finance in September 2026 now estimates a deficit of 9.26 billion or 3.1 percent of GDP,” he told a Bank of Botswana Investor Pitso this week.
“The improvement reflects among others an upward revision of P8.1 billion in total revenue following higher than anticipated Bank of Botswana revenue the final fiscal position will also depend on our ability to contain expenditure in-year performance has also improved as a June 2026 government recorded a budget surplus of P2.5 billion equivalent to 0.85% of GDP.”
The original deficit projection had reflected the severity of Botswana’s economic slowdown and the collapse in mineral revenues.
Diamonds traditionally contribute about 33% of government revenue and three-quarters of the country’s foreign-exchange earnings.
When the national budget was presented in February, the P26.4 billion funding gap was expected to push public debt beyond the statutory ceiling.
Debt was forecast to rise from around 37% of GDP in March 2026, with analysts predicting the public debt ceiling would be exceeded in months.
The revised deficit reduces some of that immediate pressure and could limit the pace at which government needs to accumulate new debt.
It also comes alongside signs that the wider economy is beginning to recover. Botswana’s GDP contracted by 2.8 percent in 2024 and a further 0.7% in 2025, but expanded by 3.5 percent year-on-year during the first quarter of 2026.
Diamond production also increased sharply in the second quarter, even though it is not yet clear whether this will results in high diamond sales for De Beers.
The recovery represents an important change in direction after two consecutive annual contractions. However, Gaolathe told the gathering that its composition was as important as the headline growth rate because the country remained heavily exposed to the performance of diamonds.
“Botswana’s long-term strength cannot depend on the recovery of a single commodity,” he said.
Government is banking on the Botswana Economic Transformation Programme (BETP) and National Development Plan 12 to diversify the economy, despite updates from the Ministry of Finance showing that many projects are not yet bankable or at executions stage.
The improved fiscal outlook also reflects measures introduced since the 2025–2026 financial year to cut non-essential expenditure across ministries, departments and agencies.
Government is also strengthening tax administration, broadening domestic revenue collection and targeting an increase in the tax-to-GDP ratio over the next five years.
Parliament has approved legislation covering value-added tax, income tax, customs and tax administration. The Value Added Tax and income-tax changes are expected to raise an additional P2.47 billion annually.
These measures are strengthening the government’s revenue base at a time when diamond income remains uncertain.
However, fiscal consolidation will have to be managed carefully because slower public spending and tighter taxation can constrain activity in sectors that depend heavily on government procurement and household consumption.
Inflation also remains a challenge within the emerging recovery. The annual rate stood at 10.7% in July, above the Bank of Botswana’s medium-term objective range of 3-6 percent.
The combination of high inflation and tighter fiscal policy means the recovery may take time to spread evenly across businesses, households and different parts of the economy.
However, the sharply lower deficit gives government more room to manage these pressures than was expected at the beginning of the financial year.
The revised figures also provide a stronger backdrop to Botswana’s credit-rating position. S&P Global Ratings this month affirmed the country’s long-term sovereign rating at BBB- and its short-term rating at A-3, maintaining Botswana’s investment-grade status.
S&P retained a negative outlook, pointing to structural weakness in global diamond demand and continuing pressure on exports, fiscal revenues and foreign-exchange buffers. The agency had forecast a deficit of 8.9 percent of GDP for the current year and 6.7 percent next year.
The revised 3.1 percent estimate is therefore materially stronger than the fiscal position assumed in S&P’s assessment, although the underlying diamond and diversification risks remain.
Borrowing will continue to finance approved development and fiscal requirements. Parliament has increased the government bond programme ceiling from P55 billion to P85 billion, but Gaolathe stressed that the figure represented an authorised ceiling and not a borrowing target.
Actual issuance will depend on financing requirements, debt sustainability and market conditions. “Botswana has retained its footing. Now we must strengthen it,” Gaolathe said. The latest deficit numbers suggest that the economy has begun that process.