Economic recovery is facing questions over its sustainability as rising diamond production masks weak domestic demand.
According to Econsult’s 2026 Q3 Economic Review, while several economic indicators improved during the third quarter, the recovery remains narrowly based and heavily dependent on diamonds with much of the additional production apparently accumulating in stockpiles rather than generating export earnings.
The review notes that annual GDP growth rose to its highest level in three years, supported by a recovery in diamond production.
Foreign exchange reserves continued to increase, banking sector liquidity improved, interest rates on government debt declined and there were signs that efforts to contain the fiscal deficit were beginning to yield results.
However, beneath these improvements lies an economy still struggling with structural weaknesses.
“The growth recovery is very narrowly based, driven almost exclusively by an increase in diamond production,” the review states. It further warns that “not all of those diamonds are being sold and exported” resulting in a sharp deterioration in the balance of trade.
The review questions the significance of Botswana’s reported 8.7 percent quarterly GDP growth.
“We do not pay too much attention to the growth of quarterly GDP, as it is a very volatile number with little information content relating to underlying growth trends,” it states.
It argues that the figure should not be mistaken for evidence of a sustained economic recovery.
“We do not pay too much attention to the growth of quarterly GDP, as it is a very volatile number with little information content relating to underlying growth trends,” it states.
According to the review, the 8.7 percent growth was largely driven by a sharp increase in Debswana’s quarterly diamond production, reflecting mine maintenance decisions and the sequencing of production to meet annual targets rather than a fundamental improvement in economic activity.
It warns that Debswana’s production in the third quarter was sharply lower than a year earlier, raising the possibility that the next quarterly GDP figure could turn negative.
The review notes the apparent disconnect between production and actual sales. The review says inventory accumulation, believed to consist mostly of diamonds, was equivalent to more than 10 percent of GDP during the first half of 2026.
Meanwhile, quarterly diamond exports fell to their lowest level since the second half of 2024.
“Growth driven by increased but unsold diamond production therefore has little wider economic benefit,” the review cautions.
The weakness is also reflected in household spending. The 8.7 percent increase in real quarterly GDP during the second quarter of 2026 coincided with a 7.2 percent contraction in real household consumption.
Outside diamonds, the private sector continues to struggle with non-diamond private sector growth reaching only 1.6 percent annually in the second quarter.
However, with weak household consumption, contracting bank credit and uncertainty over diamond sales, the review suggests that improved headline economic indicators have yet to translate into a broad-based recovery.
Agriculture was among the worst performers as it recorded a five percent annual contraction, largely because of Foot and Mouth Disease (FMD) restrictions.
Livestock output plunged 48 percent year-on-year in the second quarter while meat-processing output fell by 61 percent.
The restrictions continued into the third quarter, threatening to weigh on full-year economic growth.
The review also highlights the mounting pressure on government finances as Botswana grapples with structural changes in the global diamond market.
The 2025/26 and 2026/27 budgets projected deficits of P25.5 billion, equivalent to 9.3 percent of GDP, and P26.4 billion, representing 8.9 percent of GDP, respectively.
Government has committed to fiscal consolidation to prevent escalating public debt, higher borrowing costs and the crowding out of private sector investment.
The medium-term fiscal outlook anticipates a reduction in the deficit to 3.2 percent of GDP by 2028/29.
However, with weak household consumption, contracting bank credit and uncertainty over diamond sales, the review suggests that improved headline economic indicators have yet to translate into a broad-based recovery.
