Economic crisis to worsen

Chief Economist at SPECK Dynamics, Sennye Obuseng, has warned that Botswana’s economic downturn is set to deepen, citing global trade headwinds and dwindling diamond sales as key drivers. In an interview with Botswana Guardian, Sennye emphasised that the country is in its second consecutive year of economic contraction.“We are in a dire situation. Last year, the economy shrank by three percent, and this year, it is forecast to decline by 4.1 percent.”He attributed the decline to reduced government spending and delayed payments to suppliers, which have placed a financial strain on local businesses.“The country’s import cover has declined significantly, and may last for only three months. This calls for the government to take drastic action ".While the government has responded by devaluing the Pula to stimulate competitiveness, Obuseng cautions of adverse effects on consumers and businesses.“The minister of finance failed to explain why they decided to devalue the pula last week when enacting it, and this is what caused a lot of complaints and panic among traders and consumers.However, we now understand that this is a bitter pill which we must swallow to ensure that our economy is running.”Recently, the Ministry of Finance, in collaboration with the Bank of Botswana, has revised the exchange rate framework to enhance the competitiveness of domestic industries and safeguard foreign reserves.Adjustments to the Pula exchange rate policy, which came into effect on 11 July 2025, are aimed at supporting economic growth and preserving foreign exchange reserves amidst challenging economic conditions.Among the key adjustments is the Annual Rate of Crawl, which has been increased from 1.51 percent to 2.76 percent, aiming to improve international price competitiveness of Botswana's goods and services while maintaining inflation within the target range of 3-6 percent.Pula trading margin has also been expanded from ±0.5 percent to ±7.5 percent, encouraging the development of an interbank foreign exchange market and reducing reliance on the Bank of Botswana for foreign currency transactions.Botswana’s economy is heavily reliant on minerals but considering the decline in diamond sales there is a need for economic diversification, and sectors like agriculture must be boosted.Obuseng highlighted that the government had tried to develop the horticulture market and encouraged local producers to grow by imposing the vegetable import ban but this has not yielded expected results as it was not delivered in the right approach.“There were no consultations, and the approach was only focused on the producers, not the whole value chain. Small businesses and the informal sector were highly impacted by this ban, and other sectors like restaurants and hotels were affected by a lack of supplies due to low production by local farmers.”There was also a lack of regulatory impact assessment before the import ban, and again, when the current government came into power, they repeated the same mistake of not consulting the industry.“Policy changes are disruptive, so there is a need for thorough consultations and assessment of the market before rushing into decisions. Regulation is not something that the regulators must be excited about and decide to use it without a thorough assessment of the market. It is a two-edged sword so it should be exercised with due diligence”.He said too much regulation can disrupt the economy when not done properly. “We see the establishment of Botswana Oil. Currently, there are issues that Botswana Oil has not given any positivechanges to the energy industry. So the government should ensure that it does not overregulate industries.”Standard Chartered Economist for Africa Markets, Emmanuel Kwapong, recently highlighted that there is a continuous uncertainty over diamond sales, and this is creating a weaker fiscal growth.“It becomes more urgent for Botswana really to implement reforms that could boost private sector growth, that could support diversification.”Although diversification has been a recurring theme in government discourse, experts attribute the lack of progress to trade and policy bottlenecks.

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Economic crisis to worsen