Botswana’s business community expects the domestic economy to stage a modest recovery in 2026, although firms remain concerned about weak government spending, elevated financing costs and an unfavourable exchange rate environment.
The findings are contained in the Bank of Botswana’s June 2026 Quarterly Business Expectations Survey, which gathered responses from 100 businesses across 13 economic sectors, with a response rate of 54%. The survey covers business expectations for the second quarter of 2026, the third quarter and the 12 months to June 2027.
Firms expect overall output to expand by 2.1% in 2026, representing a modest recovery from the 0.7% contraction recorded in 2025. The outlook, however, remains below the Ministry of Finance’s 3.1% growth projection for the year. Businesses anticipate growth of 1.3% in the second quarter and 1.8% in the third quarter of 2026.
Despite the expected recovery, sentiment towards near-term business conditions remains subdued. Firms in Construction and Real Estate; Finance, Professional and Administrative Activities; Retail, Accommodation, Transport and Communication; and Manufacturing were pessimistic about conditions in the second quarter.
The outlook for the third quarter was similarly mixed. Retail, Accommodation, Transport and Communication, Construction and Real Estate, and Agriculture remained pessimistic, while Manufacturing and Finance, Professional and Administrative Activities were optimistic. Mining and Quarrying firms assessed conditions as neutral.
The longer-term outlook is considerably more positive. Businesses were optimistic about conditions over the 12 months to June 2027, with Construction and Real Estate, Finance, Professional and Administrative Activities, Retail, Accommodation, Transport and Communication, and Manufacturing all expressing positive sentiment. Agriculture remained pessimistic, while Mining and Quarrying was neutral.
The Bank of Botswana attributes the improvement in longer-term confidence partly to expectations that government initiatives under National Development Plan 12 and the Botswana Economic Transformation Programme will support economic recovery and improve the business environment.
The survey also highlights a notable divide between businesses serving domestic markets and those focused on exports. Domestic market-oriented firms remained pessimistic about business conditions in the second and third quarters of 2026, although their confidence turned positive over the 12-month horizon. Export-oriented firms, by contrast, were optimistic from the second quarter of 2026 through to June 2027.
According to the Bank, the optimism among exporters is partly consistent with the exchange rate parameter adjustments implemented in July 2025, including a higher downward rate of crawl of the Pula intended to support export competitiveness.
For domestic-facing businesses, however, exchange rate movements have created additional pressure because of Botswana’s significant reliance on imported goods and production inputs. The Bank noted that the gradual depreciation of the Pula against the South African rand has increased the cost of imported inputs, potentially squeezing production costs and profit margins for manufacturers while increasing the cost of imported stock for wholesalers and retailers.
Financing conditions emerged as the biggest obstacle to business activity. The cost of finance was identified as the major factor adversely affecting operations during the second quarter, with firms pointing to high borrowing costs, stringent collateral requirements and cautious lending practices.
The survey indicates that lending interest rates are expected to increase across domestic, South African and other foreign markets over the 12 months to June 2027, with the strongest increase anticipated in Botswana. At the same time, businesses expect borrowing volumes to rise across all markets.
The expected increase in borrowing is not necessarily a sign of aggressive investment. The Bank said stronger credit demand could instead reflect higher working-capital requirements and liquidity-management needs as businesses navigate a challenging operating environment.
Domestic credit markets remain the preferred source of borrowing for most domestic-oriented businesses, while export-oriented firms show a greater preference for borrowing outside Botswana. The latter preference is attributed partly to exporters’ foreign-currency earnings, which can help reduce currency mismatches and provide access to a broader range of financing options.
Access to credit is also emerging as a more important consideration than the cost of credit alone. Approximately 45% of surveyed firms said their borrowing preference was primarily determined by access to credit, while 25% cited availability and 20% affordability. A further 9% identified a combination of these factors.
The findings suggest that non-price barriers, including collateral requirements and stringent credit-history documentation, could be limiting firms’ access to external finance, with small, medium and micro enterprises likely to be particularly affected.
The shift in financing preferences further reflects these pressures. Retained earnings remained the dominant source of financing in the second quarter, accounting for 53% of firms’ preferred financing sources, up from 50% in the first quarter. The share preferring loans fell sharply from 43% to 28%, while equity financing increased from 5% to 17%. Composite financing remained unchanged at 2%.
The Bank said the increased reliance on retained earnings, coupled with declining preference for loans, may signal tighter credit conditions as banks become more cautious in extending finance amid slower economic growth and heightened uncertainty.
On inflation, businesses expect some relief in the immediate period. Overall cost pressures are expected to decline in the second quarter of 2026, largely because of anticipated moderation in the costs of utilities, wages, materials and transport.
Businesses expect inflation to average 4.3% in 2026, down from the 4.5% projection in the previous survey. Inflation is then expected to rise to 4.9% in 2027, although both forecasts remain within the Bank of Botswana’s 3–6% objective range.
The Bank said this indicates that inflation expectations remain well anchored, although the outlook could change if inflationary pressures persist, particularly through higher imported prices linked to elevated global commodity prices and continued supply-side pressures.
Beyond finance and exchange rates, businesses identified several other constraints affecting operations. These included subdued domestic and international demand, limited availability of raw materials, shortages of skilled labour and constrained access to external financing.
Government spending was the second major factor adversely affecting business conditions. The Bank linked this concern to Botswana’s weaker fiscal position, characterised by lower government revenue and reduced expenditure, and noted that weaker diamond export earnings than in previous years have adversely affected both government revenue and domestic liquidity.
The survey’s assessment points to the importance of reducing the economy’s dependence on imports while strengthening domestic productive capacity. The Bank said the challenges in the exchange rate environment reinforce the need for greater economic reorientation, including initiatives to improve domestic industry competitiveness, expand local production and promote export orientation.
Not all conditions were viewed negatively. Businesses identified reliable water and electricity supply, a stable political environment and a predictable regulatory framework as supportive factors for economic activity.
Overall, the June survey presents an economy caught between weak near-term business sentiment and cautious optimism about the medium-term outlook. While businesses continue to face significant pressure from financing costs, constrained government spending, exchange rate movements and weak demand, they expect conditions to improve over the year to June 2027.
The Bank of Botswana’s assessment therefore points to a modest recovery in 2026, with businesses expecting growth to strengthen gradually while inflation remains contained. The extent to which the more optimistic longer-term outlook materialises will depend, among other factors, on the implementation of government development initiatives, improved liquidity conditions, access to finance and efforts to strengthen domestic production and export competitiveness.