Cynthia Thanda

On the 25^th of February 2026, at the Linah K Mohohlo Auditorium, Bank of Botswana in Gaborone, the Bank of Botswana launched its 2026 Monetary Policy Statement (MPS) at what officials describe as a defining moment for the nation’s economy. With diamond revenues declining and structural reforms underway, the Bank emphasized that Botswana is transitioning from the “glory days of diamonds” towards new opportunities that must be seized before they fade, “like a rainbow.”

The statement was accompanied by the second annual Fireside Chat, a format introduced in 2025 to deepen engagement, enhance transparency, and provide space for broader perspectives. This year’s theme, “A New Dawn for Botswana: Implications for Monetary, Exchange Rate, and Financial Stability Policies,” underscored the challenges and opportunities facing the economy.

Global and Domestic Context

The Bank reported that global growth stagnated at 3.3% in 2025, unchanged from 2024 and below the long-term average of 3.7% recorded between 2000 and 2019. Inflation moderated globally from 5.8% to 4.1%, reflecting subdued activity, high interest rates, and easing commodity prices.

Domestically, Botswana’s economy contracted by 0.4% in 2025, an improvement from the 2.8% decline in 2024, supported by stronger non-mining sectors. Inflation averaged 2.7%, below the Bank’s medium-term objective range of 3–6%.

Monetary Policy Actions

In October 2025, the Bank raised the policy rate by 160 basis points, from 1.9% to 3.5%, to correct misalignments between policy stance and market lending rates. Commercial banks were instructed not to raise lending rates further, a move aimed at preserving credit affordability and strengthening policy transmission.

Liquidity management reforms included extending repo agreements to three months and reducing the credit facility rate spread, designed to stabilize funding conditions and improve liquidity distribution.

Exchange Rate Framework

The Pula continues to be managed under a crawling band arrangement, with adjustments announced semi-annually. In 2025, trading margins were widened from ±0.125% to ±0.5% in January, and further to ±7.5% in July, alongside an increase in the annual crawl rate to 2.76%.

The currency basket was adjusted to equal weights of 50% South African rand and 50% IMF Special Drawing Rights, moderating volatility and supporting competitiveness.

These measures yielded positive outcomes:

•           Smoother valuation adjustments without undermining inflation targets.

•           Reduced reliance on the Bank for foreign exchange transactions.

•           Strengthened reserves and confidence in the exchange rate framework.

Outlook for 2026

Global growth is expected to remain at 3.3%, with inflation moderating further due to high interest rates and declining commodity prices.

Botswana’s economy is projected to expand by 3.1%, driven by mining recovery and structural reforms under the Economic Transformation Program. Inflation is forecast to remain within the 3–6% objective range, with expectations well anchored according to the December 2025 Business Expectations Survey.

The Bank introduced asymmetric trading measures in 2026, reducing the buy rate for foreign exchange from 7.5% to 3% relative to central parity, while maintaining the sell rate at –7.5%. This incentivizes exporters and supports reserve accumulation.

Fireside Chat: Questions and Answers

The Fireside Chat provided a platform for external voices to engage directly with the Bank’s policy stance.

1. Consumer and Competition Perspective

Question (Competition and Consumer Authority):

How are rising interest rates, liquidity constraints, and cost pressures affecting prices, access to financial services, and competition?

Answer:

Ms. Nomathemba Dladla, Director of Mergers and Monopolies at the Competition and Consumer Authority, explained that stronger firms often survive shocks while smaller ones risk liquidation or acquisition, reducing competition. Rising borrowing costs and exchange rate pressures push businesses to raise prices, sometimes opportunistically. The CCA’s role is to monitor markets and protect consumers from unfair practices.

Key Point: Market consolidation and opportunistic pricing are risks; regulators must safeguard competition and consumers.

2. Banking Sector Perspective

Question (to Bankers Association of Botswana):

From the banking sector’s perspective, what makes this period different, and how should policymakers and financial institutions respond?

Answer:

Mr. Sheperd Aisam, CEO of Access Bank and Chairman of the Bankers Association of Botswana, described Botswana’s current moment as a structural reset, not a cyclical slowdown. He emphasized smarter capital allocation, disciplined execution, and building “trust infrastructures” such as efficient border systems and business processes. Banks must both stabilize and catalyze growth, particularly by supporting MSMEs, which require far more funding than currently allocated.

Key Point: The slowdown is structural. Banks must catalyze growth while policymakers focus on enabling environments.

3. Business and Private Sector Perspective

Question (to CEO Business Botswana):

How are current developments in industry, exchange rates, and inflation affecting business investment decisions, operating costs, and expansion plans?

Answer:

Ms. Tumi Mbaakanyi, CEO of Business Botswana, noted that rising interest rates have increased the cost of capital, raising production costs and constraining expansion. Predictability is crucial for businesses, especially SMEs and women-owned enterprises, which face heightened challenges under tighter financing conditions.

Key Point: Higher capital costs constrain expansion; predictability and targeted support are vital.

4. Role of Economic Journalism

Question (Business Editor, Sunday Standard):

How does business and economic journalism help ordinary citizens understand central bank decisions, and what can policymakers do to communicate more clearly?

Answer:

Mr. Victor Baatweng, Business Editor and Senior Journalist of Sunday Standard newspaper, likened journalists to translators, simplifying technical economic language for citizens who may lack formal financial education. Without clear communication, citizens risk misunderstanding key policies such as debt ceilings or bond issuances, even when these directly affect their lives.

Key Point: Journalists bridge the gap between technical policy and public understanding.

5. Impact on Businesses and Households

Question (to CEO Business Botswana follow-up):

How do constrained government finances and slow growth affect businesses and households?

Answer:

Ms. Tumi Mbaakanyi, CEO of Business Botswana, explained that financing becomes difficult for both SMEs and households. Businesses struggle to expand, while households face limited access to credit, leaving lives “at a standstill.”

Key Point: Constrained credit limits both household consumption and business expansion.

Audience Interventions

Audience members added sharp reflections that broadened the discussion:

•           “Never waste a crisis.” Policymakers were urged to use current challenges to implement reforms with honesty and integrity.

•           Trust deficit in transmission. Concerns were raised that households, businesses, and government may lack confidence in the central bank’s signals. Clearer communication of market and policy rates was urged to rebuild trust.

•           Risk management and exchange rate regime. Some questioned whether the crawling band arrangement could erode foreign exchange reserves if not managed transparently.

•           Fiscal discipline. Calls were made for rule-based fiscal management, warning that without discipline, taxes would inevitably rise to cover deficits.

•           Combating misinformation. Participants stressed the need for transparency, speed, and clarity to counter fake news. Developing a stronger cohort of trained financial journalists was highlighted as critical.

•           Dialogue and trust infrastructures. Structured dialogue between government, the private sector, and civil society was emphasized, alongside building trust infrastructures to attract foreign direct investment.

Conclusion

The 2026 Monetary Policy Statement and Fireside Chat highlighted Botswana’s defining moment: the transition from diamond dependency to a diversified, resilient economy. The Bank reaffirmed its commitment to price stability, financial stability, and structural reforms, while external voices underscored the importance of trust, transparency, and collective action.

As Governor Mr. Lesego Caster Moseki noted, “Opportunities are like a rainbow. They don’t last forever. If we don’t seize them, they pass just like the rainbow.”

The challenge now is whether Botswana will simply observe the rainbow or move decisively toward it.