Senior Economics Lecturer at the University of Botswana, Obonye Galebotswe, says the move is a clear response to widening economic imbalances. “With sluggish growth, weak export earnings, and increasing imports, the domestic currency has faced consistent downward pressure,” he said, noting that the devaluation was becoming inevitable.
The Bank of Botswana has confirmed that the pula will depreciate by 2.76% over the next 12 months, a steeper drop compared to the previous 1.51%. Authorities say the adjustment is intended to strengthen the competitiveness of local industries and protect foreign exchange reserves, which have been declining since 2018 and now stand at a low of 5.2 months’ import cover.
Botswana operates a crawling peg exchange rate system, adjusting its currency twice a year in line with a basket that includes the South African rand and the International Monetary Fund’s Special Drawing Rights (SDR).
Galebotswe explained that Botswana’s economy contracted by 3% in 2024 and is expected to shrink again by 0.4% this year. With diamond exports, the country’s main foreign currency earner, facing a prolonged slump, overall mining sector performance has also weakened.
“Since September 2023, Botswana has been running a trade deficit and falling reserves have made the previous exchange rate policy difficult to sustain,” Galebotswe added.
The weaker pula, while intended to boost domestic competitiveness, may raise the cost of imports. Galebotswe acknowledged that price increases could follow, especially in a country that relies heavily on imported goods and services.
The pula is pegged equally to the South African Rand and the SDR, offering some protection from currency shocks in neighbouring markets. “The 50-50 split helps balance volatility, especially given the frequent fluctuations in the rand,” Galebotswe said.
Looking ahead, Galebotswe highlighted the importance of broadening Botswana’s economic base. “Tourism, agriculture, and minerals like copper and soda ash offer real opportunities to reduce over-reliance on diamonds,” he said.
--ChannelAfrica--
