New data from Botswana’s banking sector reveals a sharp rise in loan arrears among households and businesses, reflecting mounting economic pressures and financial strain that are slowing income growth and hampering debt repayment.
Loan defaults climbed by P1.1 billion, from P6.9 billion in December 2025 to P8 billion in January 2026.
In January, households accounted for P4.5 billion in overdue loans, while businesses reported P3.5 billion in arrears. Household loans overdue between 30 and 90 days totaled P1.1 billion, those overdue 90 to 180 days reached P851.2 million, and loans past due for more than 180 days stood at P913 million. An additional P1.6 billion in household debt was recorded with unspecified arrears duration.
For businesses, loans overdue 30 to 90 days amounted to P974.4 million, those overdue 90 to 180 days totaled P301.6 million, and loans past due more than 180 days reached approximately P1.3 billion. The banking sector also flagged an additional P900 million in business loan defaults during January.
Within the business category, the construction sector recorded the highest arrears, close to P1 billion, followed by trade at P545.4 million, agriculture at P312.6 million, real estate at P207 million, and manufacturing at P143.3 million.
The rise in loan arrears in January follows a deepening economic recession in Botswana during the fourth quarter of 2025, compounded by a rising cost of living that has strained both households and businesses. The economy, heavily dependent on diamond mining, reversed course sharply after reporting a robust 10.9 percent quarter-on-quarter growth and 8.2 percent year-on-year expansion in the third quarter of 2025.
However, in the fourth quarter, the economy contracted by 11.4 percent quarter-on-quarter and shrank 5.4 percent compared with the same period the previous year. This quarterly contraction was significantly steeper than declines of 3.5 percent and 0.2 percent recorded in the second and first quarters of 2025, respectively. The annual decline also accelerated compared to year-on-year contractions of 5.2 percent in Q2 2025 and 0.3 percent in Q1 2025.
This downturn was driven largely by a dramatic drop in mining output. The mining and quarrying sector’s real value added fell 47 percent in Q4 2025, following a 39.5 percent growth in Q3. This marked the largest decline since the second quarter of 2020, when the pandemic severely disrupted the economy, according to Statistics Botswana.
The plunge was primarily due to a 54.6 percent fall in diamond production, attributed to prolonged maintenance at a key mine and efforts to balance supply with weakening global demand. Botswana’s major mining company, Debswana, cut production by 27 percent to 17.9 million carats in 2024, and further reduced output to 15.1 million carats in 2025. Production of coal and salt & soda ash also declined by 13.3 percent and 8.2 percent, respectively.
The contraction extended beyond mining. The construction sector’s real value added dropped 2.3 percent in Q4 2025, worsening from a 1.1 percent decline in the previous quarter. The sector includes building construction, civil engineering, and specialized construction activities. Meanwhile, the electricity subsector shrank by 5 percent, driven by an 11.6 percent decrease in domestic electricity generation and a 12.1 percent reduction in imported electricity volumes.
Inflation, which affects households’ and businesses’ capacity to repay loans, accelerated starting October 2025. The Finance Ministry reported that annual inflation reached 3.9 percent in December 2025, up from 1.7 percent a year earlier. The rise was mainly due to higher utility tariffs, fuel price adjustments, and a July 2025 revision of exchange rate parameters that increased the cost of imports.
Analysts warn that loan defaults may remain high throughout 2026 amid persistent economic challenges and rising living costs, which are expected to reduce income available for debt repayment. Recent projections highlight the risk that escalating tensions between Iran and the UAE could push inflation beyond current estimates by driving up energy prices. There are also concerns that ongoing geopolitical instability could further disrupt global diamond markets, prolonging the sector’s slump and leading to reduced output from key producers, including Botswana.