Botswana’s economy is emerging from two consecutive years of contraction, but its recovery remains fragile. Growth still depends heavily on diamond production, while household consumption, private-sector activity and bank lending remain weak, according to a new economic assessment by Econsult.
The economy contracted by 2.8 percent in 2024 and a further 0.7 percent in 2025, amid a prolonged downturn in the diamond industry. Economic activity has since begun to recover, but the improvement remains narrow and has yet to translate into stronger growth across the wider economy.
Annual GDP growth rose to 3.7 percent in the second quarter of 2026, from 0.2 percent in the first quarter. In its *Economic Review for the Third Quarter of 2026*, compiled by economist Keith Jefferis, Econsult reports that real quarterly GDP increased by 8.7 percent in the second quarter. It cautions, though, that this should not be taken as evidence of a broad-based recovery, given the economy’s continued reliance on mining.
The report also highlights a sharp contrast between rising output and household conditions: real household consumption fell by 7.2 percent in the quarter. Weakness extended to the non-diamond private sector, which recorded annual growth of just 1.6 percent. Tourism, education, and electricity and water supply were among the sectors that grew steadily, providing some support beyond mining.
Agriculture remained the worst-performing sector, contracting by 5 percent in the second quarter. The decline was largely linked to restrictions on livestock movement and sales following the Foot and Mouth Disease outbreak. Livestock production fell by 48 percent year on year, while meat-processing output declined by 61 percent.
The difficult economic conditions are also evident in the banking sector. Total bank credit contracted by 2.2 percent in the year to July 2026. Household credit fell by 4.7 percent and business credit by 1.3 percent, as high borrowing costs and subdued economic activity weighed on lending.
Despite the slowdown in credit, bank deposits rose by 3 percent, from P115.24 billion in April to P118.64 billion in July. Lending moved in the opposite direction, falling by 2.5 percent to P87.87 billion from P90.10 billion. As a result, excess liquidity in the banking sector increased from 8.2 percent to 11.4 percent. Econsult suggests that weak demand for credit – possibly due to high interest rates or tighter lending standards – may explain why higher deposits have not led to increased lending.
Botswana’s external trade position also weakened between the first and second quarters of 2026, as imports continued to exceed exports in value. Imports rose by 9.8 percent to P24.33 billion, while exports increased by 11.6 percent to P16.23 billion. Despite the stronger growth in exports, the trade deficit widened to P8.10 billion, P476 million more than in the previous quarter.
There were some positive signs in the broader financial environment, including rising foreign exchange reserves and improved banking-sector liquidity, as well as lower interest rates on government debt. Inflation eased from 10.7 percent in June to 7.8 percent in September. Econsult warns, however, that the decline may partly reflect the failure to fully adjust domestic fuel prices as import costs rose.
The consultancy says fuel-price under-recoveries have put pressure on oil importers, with compensation costs estimated at more than P400 million a month. It warns that bringing domestic fuel prices into line with import costs could push inflation higher in the final months of the year.
On public finances, Econsult says continued spending restraint will be needed to stabilise the fiscal position. It warns that increased government borrowing could put further pressure on interest rates and private-sector investment.
Econsult expects fiscal spending restrictions to remain in place and says structural reforms under the Botswana Economic Transformation Programme will be critical to strengthening private-sector activity and diversifying the economy.
The report identifies several barriers to growth, including over-regulation, restrictive immigration and labour policies, trade restrictions, and difficulties related to land availability and transfer systems. Addressing these constraints, it says, will help create a more supportive environment for private investment and reduce the economy’s dependence on diamond production.
