Botswana, long regarded as a bastion of macroeconomic stability in sub-Saharan Africa, has announced a strategic policy shift that will allow its national currency, the pula, to depreciate at a faster pace in the face of mounting economic pressures. The Ministry of Finance confirmed on Thursday that the annual rate of depreciation of the pula will be increased to 2.76%, up from the previously established rate of 1.51% set in December 2024. This adjustment represents a significant departure from the more conservative stance that the Bank of Botswana had maintained in previous years.
The decision comes amid a prolonged global downturn in the diamond market, which has historically underpinned Botswana’s economy. The sector’s slump precipitated a 3% contraction in gross domestic product (GDP) in 2024, with projections suggesting that the economy may contract again in 2025. The announcement was made during a press briefing in Gaborone, where Sayed Timuno, a senior official at the Ministry of Finance, underscored the urgency of the move, noting that foreign exchange reserves had deteriorated sharply, placing strain on the country’s crawling band exchange rate regime.
Under this exchange rate framework, the pula is pegged to a basket of currencies dominated by the South African rand and other major currencies, and its value is adjusted biannually. The revised depreciation rate, approved by President Duma Boko, aims to boost the international competitiveness of Botswana’s exports, encourage import substitution, and ease demand on foreign currency reserves.
Timuno emphasised that the realignment was not only timely but necessary to preserve the integrity of Botswana’s exchange rate mechanism. “The recent decline in foreign exchange reserves, further worsened by the current macroeconomic environment, has the potential to compromise the stability of the exchange rate mechanism,” he remarked. A further review of the exchange rate policy is expected at the end of the year.
Botswana’s foreign exchange reserves, historically robust and often sufficient to cover more than ten months of imports, have been on a steady decline since 2018. As of February 2025, reserves had dropped to a record low of 5.2 months of import cover, according to a June 2025 research note by BMI, a Fitch Solutions entity. Despite this fall, the country has avoided the acute foreign exchange crises experienced by other major African economies such as Nigeria and Angola, thanks to its relatively disciplined fiscal and monetary policies.
Botswana’s response reflects a broader trend among emerging market economies, which are having to recalibrate macroeconomic policies in response to persistent global shocks. However, analysts caution that while a managed depreciation can offer some short-term relief and enhance export competitiveness, it also carries risks, including inflationary pressures and potential erosion of consumer purchasing power, particularly in an import-dependent economy.
Looking forward, the efficacy of Botswana’s revised currency stance will largely depend on a rebound in the global diamond trade and sustained efforts to diversify the country’s economic base beyond minerals. A more in-depth review of the exchange rate and reserve position is anticipated during the next scheduled policy assessment in December 2025.
