Pula’s stability requires more than Monetary Policy, says Gaolathe

Botswana’s extended slump in the diamond market is exposing vulnerabilities in the country’s economic model, as weakening global demand weighs on export revenues and foreign exchange reserves. This situation has highlighted the limitations of relying solely on monetary policy to shield the Pula from external shocks.

Vice President and Finance Minister Ndaba Gaolathe cautioned that Botswana cannot indefinitely defend the Pula through monetary measures while its economy remains heavily reliant on diamonds. Speaking during the 50th anniversary celebrations of the Pula, Gaolathe described the currency’s resilience as being tested at a challenging juncture for the nation, with government revenues under strain, fiscal space diminishing, and foreign exchange reserves coming under pressure.

“The prolonged downturn in the global diamond sector has exposed long-recognised vulnerabilities that Botswana has yet to fully address,” Gaolathe said. “Monetary policy alone cannot provide a permanent shield for the Pula. We must strengthen the economic fundamentals that underpin the currency.”

His remarks follow the government’s recent decision to maintain the current Pula exchange-rate framework after a comprehensive review by the Ministry of Finance in collaboration with the Bank of Botswana. The review examined the currency basket composition, the rate of crawl, trading margins on foreign exchange transactions with commercial banks, and the overall appropriateness of the exchange-rate regime.

President Duma Boko endorsed retaining a currency basket evenly split between the South African rand and the IMF’s Special Drawing Rights (SDR). This configuration is intended to moderate exchange-rate volatility. The President also approved keeping the annual downward crawl rate at 2.76 percent, a measure aimed at supporting domestic industry competitiveness while aligning with the target inflation range of 3 to 6 percent.

Government officials emphasise that these measures are designed to bolster the competitiveness of local industries, enhance external sustainability, and protect official foreign reserves. They also seek to stimulate greater market activity in foreign currency trading and improve price discovery through more competitive exchange-rate determination.

Yet Gaolathe stressed that exchange-rate policy can only address part of the challenge. “Ultimately, the strength of a currency reflects the strength of the economy beneath it,” he said.

He argued that the Pula’s value rests on the confidence of households, businesses, and investors in Botswana’s economic and institutional foundations. Citizens must trust that their savings will hold value; businesses need certainty to price contracts and invest; and investors require assurance that institutions managing the currency operate with competence, discipline, and integrity.

For decades, diamonds provided Botswana with a robust economic base that financed public infrastructure, education, and healthcare. However, the current downturn has reiterated the risks of an export economy so heavily concentrated in a single commodity. Gaolathe urged a renewed focus on strengthening the broader economic activities underpinning the Pula.

This includes developing productive agriculture and manufacturing sectors, fostering competitive businesses and mining operations that create greater domestic value, and expanding tourism ventures that benefit more communities. He also highlighted the importance of energy security, efficient infrastructure, and modern financial services. Furthermore, Gaolathe called for empowering technology firms and entrepreneurs to build businesses capable of competing beyond Botswana’s borders.

Above all, he emphasised the need to translate the skills, ideas, and enterprise of Batswana into productive economic output. Addressing structural barriers that impede productivity, diversification, and inclusive growth is critical.

Gaolathe acknowledged that this transformation requires a coordinated effort beyond government alone. Public institutions, the private sector, and households must work in concert to enhance economic resilience. Consumer choices between imported and locally produced goods will also play a crucial role in supporting domestic producers and service providers.

Economic diversification, he said, must move from a policy aspiration to the cornerstone of Botswana’s long-term strategy. It is fundamental to safeguarding the country’s economic sovereignty. Botswana must increase exports of domestically made goods and services, build more productive enterprises at home, and create meaningful economic opportunities for its people.

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