Botswana's 2027/28 budget will force the government to choose between restoring fiscal stability and funding the diversification needed to reduce dependence on diamonds, economists have warned as preliminary figures point to an improving but fragile fiscal position.
The warning was delivered as the country emerges from a difficult 2025/26 financial year in which expenditure exceeded revenue by P16.8 billion. Revenue and grants reached P69.48 billion against total spending of P86.28 billion, forcing government to borrow and draw down savings, according to reporting by The Business Weekly & Review.
Where the money went in 2025/26
The revenue structure remains heavily dependent on customs and excise, which contributed P24.98 billion, or 36 percent of total collections. Non-mineral income tax added P16.31 billion and VAT P13.71 billion. Mineral revenues, still dominated by diamonds, brought in P12.05 billion, or 19 percent of the total.
The spending pattern shows the real problem. Recurrent expenditure absorbed P70.13 billion while development spending received only P16.16 billion. Wages, transfers and operational costs are crowding out the capital investment that builds a productive economy.
A tentative surplus, with a catch
Preliminary figures for 2026/27 suggest improvement. Government reported revenue and grants of P38.23 billion against expenditure of P36.5 billion in the first quarter, producing a surplus of P1.6 billion. Customs and excise contributed P13.3 billion, mineral revenues and non-mineral income tax each brought P6.4 billion, and the Bank of Botswana added P7.3 billion.
That central bank receipt deserves scrutiny. Economist Keith Jefferis, writing in his third-quarter 2026 Econsult Review, cautioned that the reported surplus was helped by a one-off P7.3 billion distribution based on the Bank of Botswana's 2025 profits, a receipt not included in earlier budget projections. The figures remain preliminary and could be revised.
The diamond problem will not go away
Botswana can no longer count on diamond revenues as a steadily expanding source of income. Weak global demand, competition from lab-grown stones and slower activity in key markets such as China have weakened the outlook.
Tshephiso Gaetsewe, an economist at BSA, said the budget must reduce deficits, support recovery, sustain employment and social protection, and still fund infrastructure and diversification under NDP 12 and the Botswana Economic Transformation Programme.
quot;In this environment, government spending should prioritise investments that improve productivity, attract private-sector investment and create future revenue streams, particularly in infrastructure, energy, digitalisation, education and export-oriented sectors,quot; Gaetsewe said.
She warned that recurrent expenditure could increasingly crowd out capital investment if left unchecked. Many recurrent items are necessary, but they do not generate the long-term returns that productive investment does. A government that spends most of its money on consumption rather than construction is choosing decline dressed up as compassion.
Austerity or growth: a false choice done badly
The second trade-off lies between restraint and growth. Excessive austerity could weaken an already subdued economy, while unchecked spending widens deficits and accelerates debt.
quot;The guiding principle should be economic returns. Projects and programmes that enhance productivity, job creation, export earnings and private-sector investment should receive priority. In a resource-constrained environment, it should not be about how much the government spends, but how effectively it spends,quot; she said.
On revenue, Gaetsewe argued for enforcing existing tax reforms rather than raising taxes further. Better compliance, reduced leakages, stronger tax administration, digital systems and improved data sharing should come first. Reforming state-owned enterprises, using public-private partnerships for infrastructure and formalising SMEs would broaden the base without punishing ordinary Batswana with new burdens.
This is the correct instinct. A government that cannot collect what it is already owed has no moral claim on more of the taxpayer's money.
Debt servicing could exceed 10 percent of revenue
Jefferis warned that interest payments could exceed 10 percent of government revenue by 2029, limiting resources for essential services. The 2025/26 and 2026/27 budgets projected deficits of P25.5 billion (9.3 percent of GDP) and P26.4 billion (8.9 percent of GDP), with the deficit expected to fall to 3.2 percent of GDP by 2028/29. Preliminary figures put the 2025/26 deficit at P16.8 billion, or 6.1 percent of GDP.
He said spending controls and revenue measures are producing results but fiscal stabilisation remains necessary to contain borrowing costs and prevent the crowding out of private investment through higher interest rates and pressure on the exchange-rate peg. Unfunded policy commitments, including the proposed National Health Insurance scheme, add further risk.
quot;Further tough choices regarding the level and composition of government spending cannot be avoided,quot; Jefferis said.
Pick sectors that work, not slogans
Gaetsewe argued that government should concentrate resources on sectors capable of generating employment, attracting investment and diversifying exports within a shorter timeframe. She identified tourism and agribusiness, including agro-processing, as immediate priorities.
Tourism benefits from an established international brand and room to expand into cultural, business, sports and MICE tourism. Agribusiness improves food security, reduces import dependence, creates rural employment and adds value at home. Government support should target infrastructure, financing, skills and market access, with clear targets and timelines to test whether public money is generating returns before support spreads further.
She believes the 2027/28 budget should prioritise implementation over new announcements.
quot;If the current approach continues without stronger implementation, Botswana risks remaining caught in a cycle of fiscal deficits, rising debt and continued dependence on diamond revenues,quot; she said.
The Ministry of Finance's 2027/28 strategy identifies fiscal consolidation and economic diversification as its two catalytic priorities, supported by human capital development, infrastructure modernisation, digital transformation, the green economy and public service delivery. The strategy focuses on domestic revenue mobilisation and expenditure efficiency through e-procurement, public investment management, anti-corruption measures and the shift from cash to accrual accounting.
The test will be whether discipline holds when the next spending demand arrives. Botswana's fiscal sovereignty, and with it the independence of the pula, depends on leaders willing to say no.
Frequently asked questions
How big was Botswana's 2025/26 budget deficit?
Preliminary Ministry of Finance figures put the deficit at P16.8 billion, or 6.1 percent of GDP, after revenue and grants of P69.48 billion against expenditure of P86.28 billion.
What is the outlook for the 2026/27 financial year?
The first quarter recorded a preliminary surplus of P1.6 billion, helped by a one-off P7.3 billion distribution from the Bank of Botswana based on its 2025 profits.
Why can Botswana no longer rely on diamonds?
Weak global demand, competition from lab-grown diamonds and slower economic activity in key markets such as China have weakened diamond revenue prospects, according to economists cited by The Business Weekly & Review.