Botswana manages to control its fiscal deficit

Good morning 😃☀️🌞 it’s been a while, I’m back from my short break, honestly I was planning to return yesterday but we had an 11 hour power cut, well that didn’t happen.

But then this break really ignited in me the desire to refocus more on the stock market and wanted to end the Company insights series evaluating Choppies, but that will be next week Thursday. So let’s focus on today’s news:

Botswana’s Fiscal Consolidation: What’s Behind the Figures & What’s at Stake

What we know:

• Botswana’s fiscal deficit for 2024/25 has been sharply reduced to P7.8 billion, far below the P24.7 billion shortfall that was initially projected.

• Original planned expenditure was P93.4 billion, with expected revenues of P68.5 billion—a gap that would have produced a very large deficit.

• The Bank of Botswana’s latest Monetary Policy Report (August 2025) confirms the improved outcome.

Why this matters: deeper context

1. Heavy reliance on diamond revenues
   Diamonds are central to Botswana’s fiscal health and export earnings. When diamond prices or demand fall (or if production is disrupted), it hits government revenue hard. The downturn in the global diamond market has already put pressure on Botswana’s economy.

2. Other revenue sources are less stable or not growing fast enough
   

   • Non-diamond sectors (manufacturing, agriculture, services) are yet to offset fully the fluctuations in mineral income.

   • SACU (Southern African Customs Union) transfers help, but these can be unpredictable and depend on regional trade and policy.

3. Expenditure pressures are high
   

   • Government recurrent spending (wages, pensions, operations) takes a significant portion of the budget. Managing these costs is critical.

   • Development spending (capital/infrastructure) is also large, but delays or inefficiencies in implementation can reduce value.

4. Macroeconomic environment & growth prospects are weak
   

   • GDP contracted (~3%) in 2024, in large part due to diamond market weakness.

   • Growth forecasts for 2025 have been revised downward (nearly zero growth in some estimates) because the anticipated rebound in diamond revenues has been much weaker than hoped.

5. Risks to reversals
   

   • If external demand for diamonds drops further, or if global economic shocks hit, revenue can fall rapidly.

   • Domestic costs and obligations (public sector wages, subsidies, service delivery) may be politically difficult to reduce.

   • Liquidity challenges: government sometimes has delays in paying suppliers or meeting obligations when revenues under-perform.

6. Steps being taken / policy responses
   

   • The government has implemented expenditure cuts (recurrent and development budgets) to reduce spending burden.

   • Efforts to improve revenue mobilization (tax reforms, strengthening tax audit units, VAT compliance, etc.).

   • Fiscal reform proposals: better public financial management, reducing waste/leakages, better procurement, more rigorous appraisal of development projects.

7. New initiatives for long-term stability
   

   • Botswana recently launched a new sovereign wealth fund (besides the existing Pula Fund) aimed at not just stabilizing revenues, but promoting economic diversification, managing state‐owned companies more efficiently, and creating jobs. Returns (not capital) will be used.

Why this is a big deal: what’s riding on it

• Fiscal credibility: Reducing the deficit sends a message that Botswana takes its financial health seriously. This is important for accessing finance at good rates, attracting foreign investment, and maintaining or improving credit ratings.

• Buffer for shocks: With more prudent fiscal management, the country can better withstand downturns—diamond slumps, global recessions, supply chain disruptions.

• Service delivery & public welfare: Less deficit means potentially fewer borrowing costs and financial constraints, meaning essential public services (health, education, infrastructure) are more likely to be funded properly.

• Economic diversification & employment: As Botswana reduces reliance on diamonds and increases investment in other sectors, there’s hope for more stable employment prospects, especially for youth.

• Government sustainability: Long term, managing debt, maintaining reserves (e.g., in the Pula Fund or new funds), and ensuring expenditures are efficient is critical so that the state can keep meeting obligations without overtaxing citizens or resorting to unsustainable borrowing.

What to watch out for next

• How well the government delivers on lower spending without harming essential services. Cuts may hurt in health, education, and other areas if not carefully done.

• Whether revenue reforms (tax, VAT, audits, etc.) actually yield results in a climate where economic growth is weak.

• Diamond sector developments: global demand, market competition (e.g., lab-grown diamonds), supply issues.

• Whether the new sovereign wealth fund is managed transparently and whether it truly adds value (growth, diversification) rather than simply being another repository for revenues.

• How external economic conditions (global recession, commodity price fluctuations, inflation abroad) affect Botswana’s exports, prices, and foreign exchange.

Sources:

1. Bank of Botswana – Monetary Policy Report (August 2025)
   Confirms the fiscal deficit reduction from P24.7bn projection to P7.8bn.
   🔗 PDF Report

2. Government of Botswana – Budget in Brief 2024/25
   Shows original expenditure (P93.4bn) vs. revenues (P68.5bn).
   🔗 Budget in Brief 2024/25

Global & Regional Context

3. Reuters – Botswana slashes growth forecast amid prolonged diamond downturn (June 2025)
   Reports on GDP contraction and weaker diamond revenues.
   🔗 Reuters article

4. Reuters – Botswana launches new sovereign wealth fund (Sept 2025)
   Covers the new fund aimed at diversification and job creation.
   🔗 Reuters article

Development & Policy Analysis

5. World Bank – Botswana Economic Update (Nov 2023)
   Provides insights on fiscal pressures, SACU transfers, and diversification challenges.
   🔗 World Bank PDF

6. Bank for International Settlements (BIS) – Botswana: Improving Tax Systems (2024)
   Details government reforms to strengthen revenue mobilization.
   🔗 BIS speech

7. Botswana Daily News – Expenditure Cuts Announcement (2024/25)
   Reports on government tightening recurrent and development spending.
   🔗 Daily News article