The Pula currency is overvalued- Vice President Ndaba Gaolathe

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Botswana’s Vice President and Minister of Finance, Ndaba Gaolathe, has issued a timely warning about the country’s currency policy: the Pula is overvalued, and the situation is no longer sustainable.

Speaking during a recent Parliamentary Statement, Gaolathe referenced a joint study by the Bank of Botswana and the Ministry of Finance, which concluded that the Pula is overvalued by between 5 to 10 percent. According to the International Monetary Fund (IMF) standards, this means the currency is stronger than it should be in relation to others on the global market.

What Did the VP Say?

Gaolathe explained that in the past, the overvaluation of the Pula was not a problem. The country’s diamond exports brought in billions of Pula in foreign exchange, which made it possible to maintain a stronger currency without straining reserves.

However, the global diamond market has weakened:

• Demand has declined

• Prices have fallen

• Botswana is now earning less revenue from diamond sales

This has significantly reduced the inflow of foreign currency, making it difficult to defend the Pula’s value. To keep the currency from depreciating too quickly, the Bank of Botswana has been dipping into foreign reserves, selling US dollars and euros to buy back Pula.

Gaolathe warned that this approach is unsustainable. The country is now using up its savings—foreign reserves—to artificially support the currency. If this continues, Botswana risks running out of reserves altogether.

What Is the Government Signaling?

This statement marks a potential shift in policy. Botswana has long prioritized a strong and stable currency as a symbol of economic confidence. However, Gaolathe’s remarks suggest a more flexible approach going forward.

Allowing the Pula to depreciate gradually to its market-determined value could help relieve pressure on reserves and improve the country’s trade balance by making exports more competitive.

It’s a clear message: Botswana must align its currency policy with current economic realities, not past economic strength.

Why the Adjustment May Be Necessary

Potential Benefits of Allowing the Pula to Weaken:

• Protects foreign reserves from further depletion

• Enhances competitiveness of exports, especially from non-diamond sectors

• Encourages diversification of the economy

• Reduces the need for expensive currency interventions

• Aligns the Pula with actual global market conditions

Risks and Trade-offs:

• May lead to higher prices for imported goods, increasing inflation

• Makes foreign debt more expensive to service

• Can reduce consumer purchasing power in the short term

• Could increase operating costs for import-dependent businesses

Long-Term Outlook: A Necessary Adjustment

While a weaker Pula may introduce short-term challenges, it can lay the foundation for long-term economic health.

This policy pivot encourages the country to invest more in building a broader base of foreign currency earnings—through tourism, agriculture, services, manufacturing, and innovation. It’s an opportunity to reduce overreliance on diamonds and develop a more balanced and self-sustaining economy.

Letting go of artificial currency strength is not a sign of weakness; it’s a sign of financial maturity. Botswana is choosing sustainability over short-term appearances.

Conclusion

Vice President Gaolathe’s statement underscores a critical point: holding onto an overvalued currency is not worth draining the nation’s savings. By facing the facts and making tough choices today, Botswana can protect its financial future and unlock new paths to economic resilience.

This moment could mark the beginning of a more adaptive, diversified, and forward-looking national economy.

Source:

• The Projects Magazine Facebook Post
  The original statement is based on a social media update from The Projects Magazine, which reported on Vice President and Finance Minister Ndaba Gaolathe’s Parliamentary Statement.
  Screenshot reference: User-submitted image of the post titled “PULA OVERVALUATION NOT SUSTAINABLE AMID DIAMOND MARKET WEAKNESS – GAOLATHE.”

Referenced Institutions and Classifications:

1. Bank of Botswana (BoB)
   

   • Conducted joint research with the Ministry of Finance assessing the Pula’s valuation.

   • Responsible for monetary policy and foreign reserves management in Botswana.

   • Website: www.bankofbotswana.bw

3. Ministry of Finance – Botswana
   

   • Partnered in evaluating currency overvaluation and its economic implications.

4. International Monetary Fund (IMF)
   

   • The report cites IMF’s classification of currency over/undervaluation as a standard for defining the 5–10% overvaluation range.

   • IMF Exchange Rate Assessment frameworks: www.imf.org

Supporting Contextual Knowledge:

• Botswana’s historical dependency on diamond exports is well-documented in reports from:
  

  • De Beers Group

  • Statistics Botswana

  • Bank of Botswana Annual Reports

• The relationship between currency valuation, foreign reserves, and trade balance is grounded in standard macroeconomic principles, covered by sources such as:
  

  • IMF’s External Sector Reports

  • World Bank’s Botswana Economic Updates

  • Economic textbooks and monetary policy research papers