New data highlights tightening commercial bank lending to private sector

In a recent report released this week, local research firm Econsult cautioned that the government’s anticipated increase in borrowing from commercial banks and pension funds to finance budget deficits could exacerbate liquidity pressures within the financial sector and further constrain credit availability to the private sector. The 2025/2026 fiscal year is projected to record a budget deficit of P9.2 billion, equivalent to 3.3 percent of GDP. For the 2026/2027 fiscal year, the deficit is forecasted to edge closer to 5 percent.

Historically, budget shortfalls have been managed through drawdowns from government reserves, particularly the Government Investment Account (GIA). However, the Ministry of Finance has disclosed that the GIA may be fully depleted by the end of March 2026. Financing these deficits domestically has proven challenging, as bond and Treasury bill issuances have fallen short of targets.

Econsult’s data reveal that, nine months into the financial year, only P3.1 billion had been raised against an annual domestic issuance target of P10 billion. The research firm observed that the government appears poised to significantly increase borrowing from commercial banks and pension funds in the coming months—a move that could place severe strain on the banking sector’s liquidity and its capacity to extend credit. “Looking ahead, the Government is seeking to raise a huge loan, reported to be up to P5 billion, from the banks and pension funds in the coming months to finance the budget deficit, in part because debt issues (bonds and T-bills) have fallen below target.

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This will further drain liquidity from the financial sector and could lead to crowding out of private sector lending,” the firm warned. Econsult also highlighted another factor likely to compress commercial bank lending to businesses and households: rising interest rates. Throughout the 2025/2026 fiscal year, interest rates have steadily increased amid government efforts to meet its borrowing targets via monthly auctions of bonds and Treasury bills.

The yield on long-term government bonds surged from 9.48 percent in December 2024 to 12.65 percent in November 2025, while the rate on three-month Treasury bills climbed from 3.47 percent to 8.89 percent over the same period. “Government borrowing rates underpin the determination of interest rates throughout the financial sector, particularly bank lending rates, as government is competing with the private sector for loanable funds. If banks are not able to charge market-related interest rates while government keeps borrowing at ever-higher rates, the inevitable result will be a reduction in credit availability for the private sector, both firms and households,” the firm cautioned.

Data released this week by the Bank of Botswana corroborate these trends, showing that annual growth in commercial banks’ credit was 4.9 percent in November 2025, down from 5.7 percent in November 2024. Over the course of a month, total credit extended by commercial banks declined by P130 million, from approximately P90.43 billion in October 2025 to around P90.3 billion in November. Loans to households contracted by P38 million, while lending to resident and non-resident businesses decreased by P91 million and P1 million, respectively.

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