Botswana's Economy Recovers, But Household Pressure Persists

Botswana's economy is emerging from a two-year contraction, with growth rebounding to 3.7 percent in the second quarter of 2026. However, this recovery remains fragile and heavily dependent on diamond production. According to a report by Econsult, the economy contracted by 2.8 percent in 2024 and 0.7 percent in 2025 due to a prolonged downturn in the diamond industry. Despite the recent growth, the report cautions that the improvement is narrow and has yet to translate into stronger growth across the wider economy.

The Econsult report highlights a sharp contrast between rising output and household conditions. Real household consumption fell by 7.2 percent in the second quarter, and weakness extended to the non-diamond private sector, which recorded annual growth of just 1.6 percent. Certain sectors, such as tourism, education, and electricity and water supply, grew steadily, providing some support beyond mining. However, agriculture remained the worst-performing sector, contracting by 5 percent in the second quarter due to restrictions on livestock movement and sales following the Foot and Mouth Disease outbreak.

The difficult economic conditions are also evident in the banking sector, where total bank credit contracted by 2.2 percent in the year to July 2026. Household credit fell by 4.7 percent and business credit by 1.3 percent, as high borrowing costs and subdued economic activity weighed on lending. Despite the slowdown in credit, bank deposits rose by 3 percent, from P115.24 billion in April to P118.64 billion in July. This resulted in excess liquidity in the banking sector increasing from 8.2 percent to 11.4 percent.

Botswana's external trade position also weakened between the first and second quarters of 2026, as imports continued to exceed exports in value. Imports rose by 9.8 percent to P24.33 billion, while exports increased by 11.6 percent to P16.23 billion. Despite the stronger growth in exports, the trade deficit widened to P8.10 billion, P476 million more than in the previous quarter. This highlights the challenges facing the country's economy, which remains heavily reliant on diamond production.

There are some positive signs in the broader financial environment, including rising foreign exchange reserves and improved banking-sector liquidity, as well as lower interest rates on government debt. Inflation eased from 10.7 percent in June to 7.8 percent in September. However, Econsult warns that the decline may partly reflect the failure to fully adjust domestic fuel prices as import costs rose. The consultancy estimates that fuel-price under-recoveries have put pressure on oil importers, with compensation costs estimated at more than P400 million a month.

Econsult suggests that weak demand for credit – possibly due to high interest rates or tighter lending standards – may explain why higher deposits have not led to increased lending. The report also identifies several barriers to growth, including over-regulation, restrictive immigration and labour policies, trade restrictions, and difficulties related to land availability and transfer systems. Addressing these constraints will help create a more supportive environment for private investment and reduce the economy's dependence on diamond production.

To stabilise the fiscal position, Econsult says continued spending restraint will be needed. The consultancy warns that increased government borrowing could put further pressure on interest rates and private-sector investment. Econsult expects fiscal spending restrictions to remain in place and says structural reforms under the Botswana Economic Transformation Programme will be critical to strengthening private-sector activity and diversifying the economy. This will help to create a more sustainable and diversified economy, reducing the country's reliance on diamond production.

Key points

• The economy's recovery is fragile and heavily dependent on diamond production.
• Household consumption and private-sector activity remain weak.
• Structural reforms are needed to strengthen private-sector activity and diversify the economy.