FNBB expects Botswana’s inflation to average 8.5 percent in 2026 as fuel, food and utility costs rise, while economic growth remains subdued at 1.9 percent.
GAZETTE REPORTER
Botswana faces elevated inflation and subdued economic growth in 2026 as higher oil prices, food costs and other supply-side pressures weigh on households and businesses, according to FNBB economist Gomolemo Basele.
Speaking during FNBB’s full-year results presentation for the year ended 30 June 2026, Basele said the global economic environment had become more volatile, with growth expected to remain below historical levels and inflation higher in the immediate future.
“I think generally the consensus view was that oil prices will come up, will come down over the second half of this year, which we’re seeing play out, but the path back down to normalization has been uneven,” Basele said.
Fuel shock
Basele said further destruction of infrastructure in the region around the Strait of Hormuz, as well as prolonged tensions, could slow the normalisation of oil prices.
The effects are already being felt domestically. Oil prices in Botswana remain higher than a year earlier despite reductions following increases earlier in the year.
The impact is particularly pronounced in fuel-intensive sectors such as agriculture and manufacturing, while higher transport and logistics costs are also affecting sectors that depend heavily on imports.
Basele said the experience of 2022, when Russia invaded Ukraine and oil prices rose sharply, showed how higher fuel costs could feed into domestic prices.
“We’re seeing something similar play out this year, with oil prices already having ticked up quite significantly,” he said.
Food squeeze
Food prices are expected to remain elevated, with Basele pointing to the outlook for a severe El Niño in the region and the continuing foot-and-mouth disease outbreak as additional pressures.
Utilities are also contributing to inflation. Basele said the 9 percent tariff increase implemented by Botswana Power Corporation was already beginning to influence headline inflation, while insurance, fees and licensing costs had also increased.
Policy hold
Basele expects headline inflation to average 8.5 percent this year before moderating to 3.3 percent in 2027, when it is expected to return to the central bank’s objective range.
He expects the policy rate to remain unchanged following a cumulative 360 basis point increase since October.
“The pressures that we’re seeing playing out now are primarily supply side,” Basele said, adding that relatively muted demand meant further monetary policy changes would not have the desired effect on inflation.
Liquidity lift
Improved market liquidity, supported by positive diamond sales, external government borrowing, changes to the pula framework and a significant government dividend from the Bank of Botswana, has also helped lower funding costs.
Growth outlook
Basele said improved liquidity should support credit expansion and economic activity, with FNBB raising its growth forecast to 1.9 percent from 1.5 percent.
The outlook could improve further if structural reforms successfully diversify the economy, expand manufacturing and processing, develop financial services and digitalisation, and increase investment in power production.
He said reforms would also need to address skills development to support industrialisation.