Finance Minister Ndaba Gaolathe has defended the recent adjustments made to the Pula exchange rate, acknowledging the public’s unease while stressing the need for decisive action to prevent economic collapse.
In a candid and emotive address to Parliament on Wednesday, Gaolathe assured the nation that the unpopular decision was necessary to shield Botswana from a potential foreign exchange crisis. “These are not abstract and theoretical concepts,” he said. “They directly affect everyday essentials such as groceries, fuel, and other basic needs. This policy is not about sacrifice for its own sake. It is a protective measure against collapse.”
The policy changes, announced jointly by the Ministry of Finance and the Bank of Botswana (BoB) on July 10, include an increase in the annual rate of crawl from -1.51% to -2.76% and a widening of the trading band around the central exchange rate from +/-0.5% to +/-7.5%. These moves aim to address the overvaluation of the Pula, which Gaolathe said was estimated to be 5–10% stronger than it should be, and to preserve dwindling foreign exchange reserves.
Gaolathe highlighted the sharp decline in diamond revenues—Botswana’s main source of foreign currency—as a key driver behind the decision. “In the past, an overvalued Pula was not a problem because diamond exports brought in billions. Today, the diamond market has weakened. With less foreign currency coming in, the reserves were reducing faster than before.”
Between January and December 2024, the Bank of Botswana sold foreign currency equivalent to P56.6 billion to commercial banks. “This translated to average monthly and weekly outflows of P4.7 billion and P1.2 billion, respectively. This situation is not sustainable,” said Gaolathe.
Since the July adjustments, commercial bank purchases from BoB have dropped dramatically, with weekly purchases now averaging P290 million. Gaolathe described this development as a sign of progress, indicating a shift toward market-based sourcing of foreign currency and reduced pressure on the official reserves.
He also defended the Pula’s status, rejecting claims that the currency had been weakened. “The Pula was slightly overvalued. Our currency retains its high status as a store of value and a medium of exchange, supported by a low inflation environment.”
While acknowledging the short-term hardships, including possible price hikes on imported goods, Gaolathe reiterated that the changes are intended to support local industries, SMMEs, and employment by encouraging domestic production. “This means more jobs for our youth, more opportunities for entrepreneurs, and a stronger, more diversified economy,” he said.
The minister called out commercial banks for “unreasonable pricing practices” and “uncompetitive trading margins” that undermine policy transmission. He said the government is considering regulatory responses, including introducing caps on bank markups and other targeted measures.
Gaolathe also noted that since 2013, Botswana has consistently published all exchange rate parameter changes to ensure transparency and public accountability. The current changes, which took effect on July 11, 2025, are scheduled for review in December.
Reiterating his commitment to long-term transformation, Gaolathe cited the recently launched Botswana Economic Transformation Programme (BETP) as a key part of the government’s broader strategy to build a more resilient, investment-led economy. BETP, he said, is designed to transition Botswana from a consumption-driven, import-dependent model to one that is innovation-driven and export-oriented.
Gaolathe warned against delay, citing countries like Sri Lanka that faced catastrophic consequences due to inaction. “This preemptive action is about averting a catastrophic economic meltdown that would devastate livelihoods across the board,” he said, thanking the Competition and Consumer Authority for warning businesses against exploiting the exchange rate changes to raise prices unethically.
