Tando's Financial Analysis Portfolio

Market Outlook 3

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by

Tando Saubi
in

Introduction

Welcome to this week’s Market Outlook! We’re glad to have you here.

We’re refreshing our weekly outlook structure. Commencing with this edition and continuing onward, our emphasis will be exclusively on Botswana and its economic environment. This strategic shift reflects our dedication to delivering more relevant insights for financial professionals engaged with or interested in the Botswana market.

Each week, we’ll offer a concise yet thorough analysis of the country’s key economic indicators and financial market trends. We commence with the latest GDP news to establish the macroeconomic context. Subsequently, we evaluate concerns regarding the Bank of Botswana’s current monetary policy stance. We then investigate inflation dynamics and consider the structural implications of unemployment trends. In conclusion, we will review the forthcoming economic calendar, emphasising events and data releases likely to impact market sentiment in the immediate future.

Without any further ado, let’s jump right in!

Botswana’s Macroeconomic Outlook

Oh, what a year it has been for Botswana thus far! To assert that Botswana has encountered a landscape of considerable challenges would be an understatement. 

Firstly, GDP figures for the year ending 2024 revealed that the economy contracted by 3.0%, a sharp turnaround from the 3.3% growth recorded in 2023. Botswana’s economic outlook going into 2025 remains precarious, with my expectations of a stagnating economy. However, Finance Minister and the Vice President of Botswana, Ndaba Gaolathe, in the 2025 budget speech, projected a 3.3% economic growth, attributing this to the anticipated resurgence in the diamond industry and positive developments in non-diamond mining sectors. I contend that this projection is ambitious; however, it will be monitored throughout the duration of 2025. 

Secondly, Botswana’s exports declined significantly in 2024 and into Q1 of 2025, widening the trade deficit. These challenges have been primarily attributed to the downturn in the diamond market, which accounts for approximately 80% of the country’s exports. For context, it was revealed that mineral revenues plummeted from P25.19 billion to P8.70 billion, leading to a projected budget deficit of P24.73 billion, equivalent to 9% of GDP, for the 2024/25 financial year. 

You may ask what a widening trade deficit means to the economy. Well, a nation that imports a substantial volume of goods and services relative to its exports may experience currency depreciation, which can result in increased import costs and a subsequent rise in inflation, alongside greater economic dependency on foreign markets.

In response to the trade deficit, the government has pledged to exercise fiscal restraint and pursue economic diversification. The proposals for the 2025/26 budget encompass measures aimed at fostering economic growth and ensuring the long-term sustainability of public finances, which include the advancement of infrastructure, the promotion of agricultural development, and the provision of support to the private sector through reforms designed to enhance the business environment.  

Thirdly, the Government of Botswana is experiencing a considerable decline in revenues, escalating debt, and diminished financial reserves. Finance Minister Ndaba Gaolathe, during his budget speech for the fiscal year 2025/26, underscored the pressing necessity for fiscal consolidation and the replenishment of reserves, indicating that the government’s financial standing has been deteriorating as a result of decreased mineral revenues and mounting debt.

To address these issues, the government has committed to several measures to restore fiscal stability. Measures include enhancing domestic revenue mobilisation through tax reforms, such as introducing VAT on digital trade and increasing corporate and personal income tax rates by 1.5 percentage points. Additionally, public debt management is to be enhanced, with borrowing directed toward projects that yield measurable economic returns.

These substantial challenges have predominantly arisen from a decline in the diamond sector, which has traditionally served as the cornerstone of Botswana’s economic framework. Therefore, it is essential for us to analyse the developments within the diamond industry and ascertain the specific strategies the government has implemented and intends to implement further to address these challenges. This will be the focus of our forthcoming macroeconomic outlook on Botswana, as we break down the difficulties presented by the declining diamond market.

Interest Rates

Interest rates have been, well, rather interesting during the first quarter of 2025. During this period, the Monetary Policy Committee (MPC) convened on two occasions. The committee adopted an accommodative monetary policy stance, maintaining the Monetary Policy Rate (MoPR) at 1.9%, continuing its cautious and data-driven approach to monetary policy. These decisions to keep the MoPR constant were influenced by the MPC’s assessment that domestic demand was subdued, the economy remained below full capacity, and inflation expectations were well anchored. These decisions aligned with the Bank’s monetary policy framework to achieve price stability and maintain a stable, sound, and competitive market-based financial system. 

The monetary policy of the Bank of Botswana is implemented through a structured transmission mechanism, whereby modifications to the MoPR are transmitted to the real economy through several critical channels. In the context of Botswana, the bank lending channel is primary – adjustments in the MoPR impact the cost of funds for commercial banks, subsequently influencing both lending and deposit rates. When the MPC maintains or reduces the MoPR, as observed throughout the first quarter of 2025, it conveys a message to financial institutions to sustain low borrowing costs, thus promoting consumption and investment. Nevertheless, despite the MoPR remaining stable, an increase in various interest rates has not been mitigated, primarily due to heightened government borrowing and declining diamond sales, as reported by EConsult Botswana. These two factors have also contributed to a liquidity drain within the banking system, resulting in intensified competition among banks for deposits, leading to the offering of significantly elevated interest rates for short-term funds, which will ultimately influence lending rates as the liquidity shortage continues.

Other transmission channels encompass agent expectations, whereby forward-looking businesses and consumers modify their behaviour based on their perceptions of future inflation and interest rates. In Q1 2025, the Bank’s communication strategy was instrumental in keeping expectations anchored, thereby fostering confidence in macroeconomic stability. The exchange rate channel is also of considerable importance within Botswana’s context, due to its trade dependence and crawling band exchange rate regime. A stable MoPR plays a crucial role in sustaining currency competitiveness and mitigating imported inflation, particularly from South Africa, Botswana’s largest trading partner.

Overall, the actions of the MPC in the first quarter of 2025 demonstrate a calculated effort to support a delicate economic recovery while upholding its fundamental objective of price stability—an equilibrium that is pivotal to promoting long-term, sustainable growth within Botswana’s macroeconomic framework.

Inflation

During Q1 2025, the annual inflation rate (Headline) increased from 1.7% at the conclusion of 2024 to 2.8% in March 2025. This movement has drawn closer to the Bank of Botswana’s targeted inflation rate range of 3% to 6%, with inflationary prospects remaining positive. 

The current low inflation environment indicates that Botswana is positioned favourably regarding price stability, one of the primary objectives of monetary policy. The Bank of Botswana has been granted operational independence to determine the approach it believes will best achieve the inflation target. Despite the Bank of Botswana having independent control over monetary policy, it remains accountable to the government and is required to communicate its decisions clearly and transparently.  

In terms of macroeconomic interpretation, inflation remaining below the lower bound of the target range indicates that there exists potential for a more accommodative policy should economic growth experience a downturn. Nevertheless, it concurrently signifies subdued domestic demand and underutilised economic capacity. We anticipate an increase in inflation resulting from a potential escalation in global commodity prices triggered by the U.S. tariffs, a development to which we will maintain continued attention.

Unemployment 

The increased rate of unemployment has long been a subject of discourse; I contend that we are all prepared to see this challenge addressed, allowing us to engage in different discussions. To be more technical, unemployment refers to individuals of working age who are not currently employed, are actively seeking employment, and are available to begin work should a job opportunity arise. 

The most recent data on unemployment figures has proven to be exceedingly challenging to ascertain; therefore, the figures I will utilise throughout the discourse on unemployment will be solely derived from the Q1 2024 reports. As Statistics Botswana publishes updated unemployment data, I will promptly report on it.  

Statistics Botswana reports a decrease in the employed population of 4.4% from the third quarter of 2023 to the first quarter of 2024, resulting in a decline from 788,616 to 754,147 individuals. Concurrently, there was an increase of 4.3% in the number of unemployed individuals, rising from 275,159 to 287,059 during the same period. Consequently, the unemployment rate rose by 1.7%, changing from 25.9% in the third quarter of 2023 to 27.6% in the first quarter of 2024. In the context of frontier markets such as Botswana, achieving an unemployment rate within the range of 15% to 20% can be regarded as both ambitious and attainable, provided there is sustained economic growth.

In light of all of this, we collectively await with optimism the initiatives that the Umbrella for Democratic Change (UDC) will introduce concerning this significant issue. During their campaign for the elections, the UDC proposed a variety of initiatives aimed at addressing unemployment, which included the introduction of a minimum wage of BWP 4,000 per month, the provision of unemployment allowances, and an increase in old age benefits. Furthermore, in President Duma Boko’s inaugural State of the Nation Address (SONA), he emphasised plans to enhance the manufacturing and construction sectors as well as to promote youth entrepreneurship, which form part of his broader strategy to generate employment and stimulate economic growth.

While the current unemployment rate in Botswana remains a challenge, the incoming government has provided us with a roadmap for achieving a more favourable employment landscape in the coming years. The citizens of Botswana have demonstrated trust and confidence in President Duma Boko’s ability to lead us towards a better Botswana. We await the new government’s intervention and will subsequently report on significant projects undertaken by the administration.

Economic Calender

We conclude our market outlook by presenting a structured overview of forthcoming economic data releases, policy decisions, and events that significantly influence the financial markets. For the time being, we will focus exclusively on data releases from the Bank of Botswana and Statistics Botswana. As we gain a deeper understanding of the landscape, we will commence providing a more comprehensive economic calendar. We shall also maintain the economic calendar for the current month at the time of reporting, as well as for the subsequent month. 

May 2025

  • 15 May: Release of the Consumer Price Index (CPI) for April 2025. (Statistics Botswana)
  • 23 May: Publication of International Merchandise Trade Statistics for March 2025. (Statistics Botswana)

June 2025

  • 13 June: Release of the Consumer Price Index (CPI) for May 2025. (Statistics Botswana)
  • 19 June: Monetary Policy Committee (MPC) meeting by the Bank of Botswana. (Bank of Botswana)
  • 25 June: Publication of International Merchandise Trade Statistics for April 2025. (Statistics Botswana)
  • 26 June: Government securities auction conducted by the Bank of Botswana. (Bank of Botswana)

We have numerous upcoming events over the next month and a half that warrant our attention. We will provide concise reports on these significant economic events and data releases. Therefore, if you wish to obtain a quick summary of these occurrences, you are in the right place.

Conclusion

That wraps up this week’s edition of our Botswana Market Outlook! We truly appreciate you taking the time to read and be a part of our journey through the vibrant heartbeat of Botswana’s economy. We’re really excited to explore the next outlook together and keep building this blog series with you. Here’s to insights, progress, and prosperity—can’t wait to see you next week!

(Disclaimer: The Opinions Expressed In This Post Are Solely My Own)

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