Botswana’s worsening cash crunch is beginning to threaten the banking sector, with the World Bank warning that prolonged fiscal stress could undermine financial stability unless the government restores its finances.
In its latest Botswana Economic Update, Seizing the Moment: How Botswana Can Turn Crisis into Opportunity, the World Bank says years of widening budget deficits have depleted government savings, driven up borrowing costs and increased the risk that fiscal pressures spill over into commercial banks and the wider economy.
“The succession of large fiscal deficits over the past decade has steadily eroded Botswana’s fiscal buffers,” the report says.
The World Bank says savings accumulated in the Government Investment Account (GIA) during the diamond boom were repeatedly used to finance recurrent spending and cushion economic shocks, but were not rebuilt when revenues recovered.
As a result, government reserves have almost disappeared.
The GIA, which stood at 26.8% of GDP at the end of 2014, averaged less than 1% of GDP in 2025, removing one of government’s key financial buffers.
“Interest rates paid by the government have risen sharply, while the maturity of new issuances has shortened, reflecting heightened investors’ concerns about fiscal risks and the limited capacity of the domestic capital market,” the report says.
“With little cash left to draw on, the government has increasingly had to turn to borrowing,” the report says.
Public debt climbed from about 22% of GDP in 2023 to nearly 40% by 2025, prompting Parliament to raise the statutory debt ceiling to 60% of GDP from 40%.
The World Bank says the shift underscores the rapid deterioration in Botswana’s fiscal position.
Borrowing has also become more expensive.
“Interest rates paid by the government have risen sharply, while the maturity of new issuances has shortened, reflecting heightened investors’ concerns about fiscal risks and the limited capacity of the domestic capital market,” the report says.
Treasury bill yields rose from 2.5% in mid-2024 to almost 11% by March 2026, sharply increasing debt-servicing costs.
Interest payments more than doubled, rising from 0.6% of GDP in FY2022/23 to 1.5% in FY2025/26.
“That means a larger share of public resources is now being used to service debt, leaving less fiscal space for health, education and infrastructure,” the World Bank says.
The report says liquidity pressures became so severe that the government sought emergency financing from several sources.
At the end of FY2025/26, authorities took out short-term commercial loans from local banks and secured a €200 million guaranteed trade credit facility on more favourable terms.
A similar cash squeeze emerged in March 2025, when government relied on extraordinary financing, including a short-term advance from the Bank of Botswana and its first direct loan from the Botswana Public Officers Pension Fund (BPOPF).
“The risks do not stop with the budget,” the World Bank says, warning that prolonged fiscal stress could eventually spill over into the financial sector.
