28/07/2025
๐ฆ๐ง๐๐ง๐๐ ๐๐ก๐ง ๐ข๐ก ๐ง๐๐ ๐ฅ๐๐๐๐ก๐ง ๐๐๐๐จ๐ฆ๐ง๐ ๐๐ก๐ง๐ฆ ๐ ๐๐๐ ๐ข๐ก ๐ง๐๐ ๐ฃ๐จ๐๐ ๐๐ซ๐๐๐๐ก๐๐ ๐ฅ๐๐ง๐
๐๐ ๐ง๐ต๐ฒ ๐ ๐ถ๐ป๐ถ๐๐๐ฒ๐ฟ ๐ผ๐ณ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ฒ
๐ฎ๐ฏ ๐๐๐น๐ ๐ฎ๐ฌ๐ฎ๐ฑ
๐ญ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, I come before this Honourable House with full awareness that the recent adjustments made on the P**a exchange rate have not been received with ease by many Batswana. I understand the discomfort, the questions and
most importantly I understand the fears.
๐ฎ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ I know that these changes have sparked frustration, even anger, among many who ask if the government understands the pressure on livelihoods. Let me assure this nation that I do and we do. These are not abstract and theoretical concepts, they directly affect everyday essentials such as groceries, fuel, and other basic needs. I want to assure you that this policy is not about sacrifice for its own sake, rather, it serves as a protective measure and shield against economic collapse.
๐ฏ. The changes are meant to shield this country from a far more devastating outcome where we are not able to pay for imports, a situation where we can't afford fuel, food, or medicine, where banks run dry and where the poor pay an even higher price. That will not happen under our watch. I want every Motswana to know that I see you, I hear you and we are acting in your interest, even when the medicine is bitter.
๐ฐ. The decisions we have made are not popular, but popularity is not the measure of leadership, responsibility is. Mr. Speaker, history has taught us that delay in action, in times of economic vulnerability can be catastrophic.
๐ฑ. Scripture reminds us in 1 Chronicles 12:32, "Of the sons of
Issachar, who had understanding of the times, to know what Israel ought to do", in that same spirit, I stand before you today with a deep understanding of the times we live in, and
a clear conviction of what Botswana must do.
๐ฒ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, allow me to start with real world examples of
what would become of us if we do not act decisively. Sri Lanka delayed critical currency and reserve reforms and when their
reserves ran dry, the country spiralled into a full-blown crisis in 2022. Fuel stations ran dry, shelves emptied, and confidence in the state evaporated overnight.
๐ณ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, I do not have the luxury of presiding over a booming economy. My predecessors had the benefit of strong diamond revenues and stable reserves. Today, I stand before you charged with the responsibility of delivering transformation amidst scarcity, global shocks, and rising costs. I carry this burden not with fear but with the courage and duty to do what is right, even when it is not easy.
๐ด. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, On 10 July 2025, the Ministry of Finance issued a Press Release, followed by a joint press conference with the Bank of Botswana (BoB), announcing adjustments to the P**a exchange rate policy parameters. These adjustments aim to preserve foreign exchange reserves and support economic performance and growth.
๐ต. The key objective of the exchange rate policy is to maintain international competitiveness of domestic producers of goods and services. This essentially means ensuring that, when adjusted for the exchange rate, the prices of goods and services produced in Botswana remain comparable to those in external markets and for imports. Currently, this objective is achieved through the crawling peg exchange rate framework, which was introduced in 2005. This exchange rate mechanism incorporates three (3) features being:
(๐ถ) the P**a basket of currencies determined using our trading patterns. This basket includes South African rand and the IMF's Special Drawing Rights (SOR), which is however, not a currencies but an international reserve asset. Its value is based on a basket of five currencies the US dollar the euro/ the Chinese renminbi the Japanese yen/ and the British pound sterling;
(๐ถ๐ถ) the Annual Rate of Crawl - designed to approximate the difference in inflation rates between Botswana and its trading partner countries; and
(๐ถ๐ถ๐ถ) margins established around the central bilateral exchange rates at which the Bank of Botswana trades foreign currency with commercial banks.
๐ญ๐ฌ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, for this exchange rate framework to be successful, it heavily relies on the availability of sufficient foreign exchange reserves. In simple terms, the Bank of Botswana needs, at any point in time, to supply the market with foreign currencies at the published rates, to facilitate foreign currency transactions.
Under this framework, low foreign exchange reserves, as evidenced by the recent downward trend (largely driven by lower diamond exports receipts our primary foreign exchange earner, in contrast to a persistently high import bill), compromises the stability of the current exchange rate framework.
๐ญ๐ญ. In view of this, the Ministry of Finance in collaboration with Bank of Botswana regularly assesses the exchange rate policy framework to ensure its intended impact on the Botswana
economy. The review of the exchange rate is made twice a
year (in June and in December)
๐ญ. ๐ฎ. ๐ฏ. ๐ฐ. ๐ฑ. ๐ฒ. ๐ณ. ๐ด. ๐ต. ๐ญ๐ฌ. ๐ญ๐ญ. ๐ญ๐ฎ. ๐ญ๐ฏ. ๐ญ๐ฐ.
๐ญ๐ฎ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, the mid-year review of the parameters of the exchange rate framework was done for several reasons. The Ministry of Finance and Band of Botswana are committed to maintaining macroeconomic stability, including the stability of the P**a. The joint research by the Bank of Botswana and the Ministry of Finance indicated that the P**a was moderately overvalued by around 5 percent - 10 percent (as per the IMF classification of overยญ /undervaluation), meaning that the P**a was 5-10 percent stronger than it should be compared to other currencies.
๐ญ๐ฏ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, it is important that we all understand that in the past, an overvalued P**a was not a problem because diamond exports brought in billions of P**a worth of foreign currency. That income was large enough to protect our reserves, even when the P**a was slightly overvalued. Today, the diamond market has weakened, global demand has dropped, prices have fallen, and Botswana is earning far less from diamond sales, meaning that the previously strong flow of foreign currency has slowed significantly. However, when the P**a remains overvalued or stronger than it should be, the Bank of Botswana had to dip into the foreign reserves, selling dollars and euros to buy P**a and stop its value from falling too quickly. This means that with less foreign currency coming in, the reserves were reducing faster than before, putting the ability of the Bank of Botswana to continue defending the value of the P**a in question.
๐ญ๐ฐ. In simple terms, keeping the P**a overvalued was eating into our savings (foreign reserves) which was not sustainable, as the reserves would eventually run out.
๐ญ๐ฑ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, given this assessment and the overarching commitment to stability, a primary goal of the recent policy changes was to preserve the official foreign exchange reserves held by the Bank of Botswana. This objective for example, is directly addressed by the increase in the annual rate of crawl from -1.51 percent to -2.76 percent. This adjustment is intended to gradually moderate overvaluation of the P**a, thus, to enhance international competitiveness of domestic producers' goods and services, while keeping inflation tolerable, thus, within the medium-term objective of 3 - 6 percent. In addition, the larger rate of crawl is expected to help moderate the demand for foreign currency and support the preservation of foreign exchange reserves and in the process strengthen the resilience of the economy.
๐ญ๐ฒ. The widening of the trading margins around the central parity from +/- 0.5 percent to +/-7.5 percent relates to foreign currency trading between the Bank of Botswana and , commercial banks. Mr. Speaker, this adjustment acknowledges the significant foreign currency holdings within the market. The intention is to promote the trading of foreign currency between commercial banks and their clients, thereby discouraging practices where funds might be hoarded or funneled away from efficient market intermediation. By fostering a more independent market, we aim to reduce direct reliance on Bank of Botswana for foreign exchange and thereby ease pressure on the country's official reserves.
๐ญ๐ณ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, this mid-year review also maintained the basket\ of weights as 50 percent for the South African rand and 50 1 percent to the SDR (i.e comprised of US dollar, Japanese Yen, Chinese Renminbi, Euro and Pound). This helps to moderate fluctuations of the P**a in the event of large movements for any single currency that constitutes the P**a basket. In addition, the singular larger weight of the rand also to helps to sustain competitiveness of Botswana's exports in the South African market.
๐ญ๐ด. All these measures build on changes made in January 2025 and are designed to ease pressure on the country's official foreign exchange reserves and market access and, therefore, reduce the country's vulnerability to sudden economic shocks and threat of serious and adverse outcomes for the economy. The pre-emptive action is also intended to facilitate and manage the necessary adjustments to respond to the changed economic circumstances of the country.
๐ญ๐ต. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, it is worth noting that in the absence of such response, there is a risk of rapid depletion of the foreign exchange reserves, therefore, ultimate inability to pay for imports. The changes are therefore, intended to strengthen the country's foreign exchange market independent of the central bank, while at the same time preserving the official foreign exchange reserves for policy management and operational purposes by the Bank of Botswana. For example, between January 2024 and December 2024, the Bank of Botswana sold foreign currency equivalent to P56.6 billion to commercial banks. This translated to average monthly and weekly outflows of foreign currency equivalent to approximately P4.7 billion and P1.2 billion, respectively. These outflows were drawn from the country's official foreign exchange reserves during a period of declining inflows from the diamond sector. This situation is not sustainable and cannot be left unattended.
๐ฎ๐ฌ. The high volume of sales of foreign exchange to commercial banks was largely attributable to the relatively low cost at which commercial banks could access foreign currency from the Bank of Botswana at the time.
๐ฎ๐ญ. Following the adjustment of parameters in July 2025, commercial banks have significantly reduced their foreign exchange purchases from the Bank of Botswana, with weekly purchases now averaging foreign currency equivalent to around P290 million - down from the previous foreign currency equivalent to P1.2 billion a week. This decline reflects
the increased cost of accessing foreign exchange from the central bank.
The reduced volume of foreign exchange trading between the Bank of Botswana and commercial banks is a positive development, aligning with the Bank's objective of preserving foreign exchange reserves. It also serves to incentivise commercial banks to source foreign currency through alternative market-based channels, thereby enhancing the resilience and sustainability of the foreign exchange market. Further, the changes represent a strategic shift to strengthen Botswana's economic resilience amidst a challenging global and domestic landscape.
๐ฎ๐ฎ. Aspects of the parameter adjustments are designed to ' encourage local production, which also contributes to preservation of the foreign exchange reserves. Notwithstanding, the quantum of the adjustments were intensely tested for potential impact on inflation. In that regard, if appropriately transmitted, the expectation is that') inflation would remain within the 3 - 6 percent objective ' range; a level that is defined as price stability and supportive of inclusive economic growth. By design, some policy changes may bring long-term benefits but can also cause short-term challenges for certain sectors of the economy. Therefore, price increases for imported goods are possible, but not at the levels that are being notified by some businesses.
๐ฎ๐ฏ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, I want to emphasise that these measures are fundamentally for the benefit of every Motswana, not just a select few. By preserving our foreign exchange reserves, we ensure the stability of our economy and the availability of essential goods that we must import, from fuel to critical medicines for our hospitals, and food.
Without these reserves, we face a far more severe crisis: a collapse in our ability to import, leading to widespread shortages, job losses, and runaway inflation that would hit the poor and vulnerable the hardest. This preemptive action is about averting a catastrophic economic meltdown that would devastate livelihoods across the board.
๐ฎ๐ฐ. The adjusted exchange rate also directly supports our local industries and Small, Medium, and Micro Enterprises (SMMEs), especially those using locally sourced inputs in their production processes. This can create opportunity for such Batswana businesses to grow, be more domestically integrated, employ more people, and produce goods and services right here at home. This means more jobs for our youth, more opportunities for entrepreneurs, and a stronger, more diversified economy that is less vulnerable to global shocks. This is a direct benefit to ordinary citizens. I acknowledge that cost of imports, including inputs could rise. However, to the extent that this incentivises switching to locally produced inputs and consumption goods and services, this aligns with our industrialisation strategies and objectives. Moreover, the measures undertaken are calibrated not to undermine maintenance of inflation within the 3 - 6 percent objective range.
๐ฎ๐ฑ. I would also like to respond to the narrative going around that the latest action has made the beloved P**a weak. This is again far from the truth. I earlier mentioned that the P**a was slightly overvalued and therefore our currency retains its high status as a store of value and a medium of exchange. This is further supported by the low inflation environment, thanks to the Monetary Policy stance by the Bank of Botswana.
๐ฎ๐ฒ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, we recognise that these policy adjustments have had unintended consequences, impacting sectors such as exporters and those converting foreign currency to P**a. This is partly due to a market structure that has not fully supported the intended policy transmission. Despite the market's foreign exchange availability, there is clear evidence that commercial banks are maintaining uncompetitive trading margins and engaging in unreasonable pricing practices. While the authorities are actively working to address these challenges, we concurrently urge all customers to exercise their power by actively shopping around and negotiating for more competitive foreign exchange rates.
๐ฎ๐ณ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, several strategic options, which are mainly operational are under consideration. These include enhanced engagement with market participants, the potential introduction of caps on the mark-up applied by commercial banks to their foreign currency trading margins, the potential introduction of asymmetric trading margins (for the Bank's own foreign currency operations with commercial banks), and other targeted regulatory measures.
๐ฎ๐ด. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, it is crucial to underscore our commitment to transparency: while past practice often involved confidentiality regarding parameter changes, public announcement of such adjustments has been the established norm since 2013, and this practice will continue to be upheld to further enhance transparency.
๐ฎ๐ต. These policy adjustments are proactive, short-term measures
designed to avert a far more severe economic crisis that could result from an unchecked decline in foreign exchange reserves. By acting decisively now, Botswana is better positioned to maintain currency stability, preserve jobs, secure access to essential imports, and support broader economic recovery. Mr. Speaker, the review of the exchange rate framework is a continuous process, including potentially transitioning to a more sustainable framework should the need arise. The Ministry of Finance and the Bank of Botswana will continue to monitor developments closely and respond accordingly to any unintended consequences, safeguarding the welfare of the most vulnerable throughout this adjustment period.
๐ฏ๐ฌ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, allow me to repeat that countries that have faced similar economic challenges and delayed timely responses have experienced catastrophic outcomes, with more severe impact on poorer sections of society/low-income groups, aggravating poverty and income inequality. The fact that there is threat of price increases for large proportion of inputs and consumption goods is a manifestation of our vulnerability due to lack of economic diversification, modest local production and, therefore, import dependence.
๐ฏ๐ญ. Lastly, it is important for the public and businesses to understand that, while businesses may change prices for various reasons, the recently announced adjustments to the exchange rate parameters do not by themselves justify the notified rates of immediate price increases by some businesses.
Furthermore, the adjustments made are part of Government's broader strategy to address structural issues and policy implementation constraints that hinder among others, productivity. As such the success will depend on the complementary government policies and the response of the private sector to truly diversify the economy.
๐ฏ๐ฎ. ๐ ๐ฟ. ๐ฆ๐ฝ๐ฒ๐ฎ๐ธ๐ฒ๐ฟ, on the need for complementary government policies, allow me to share briefly about the recently launched Botswana Economic Transformation Programme (BETP), a national initiative designed to fundamentally reshape the structure of our economy. The BETP is a whole of government transformation programme that aims to shift Botswana from a consumption-driven, import-reliant economy to one that is investment-led, export-oriented, innovation-driven, and inclusive.
๐ฏ๐ฏ. The programme is rooted in rigorous diagnostics and a nationwide Call for Ideas that invited the public, private sector, and civil society to contribute bold, transformative project proposals. Through this process, we are identifying priority sectors that can unlock jobs, attract investment, and anchor long-term resilience.
๐ฏ๐ฐ. We are rebuilding the engine. BETP is the blueprint for a more competitive, more inclusive, and more resilient Botswana one that is better equipped to weather shocks and deliver a higher quality of life for all Batswana.
๐ฏ๐ฑ. As I conclude, I would like to take this opportunity to thank the Competition and Consumer Authority (CCA) for swift action in issuing a statement warning businesses against unethical business practices in increasing their product prices under the guise of exchange rate change. The relevant authorities remain committed to ensuring price stability, protecting consumers, and maintaining orderly market conditions for the benefit of all Batswana.
๐ฏ๐ฒ. It should be noted that the changes made became effective on the 11 July 2025 and these are scheduled for review in December 2025.
๐ฏ๐ณ. I thank you Mr. Speaker.
