The Ministry of Finance announced today, that Botswana is adjusting its Pula exchange rate policy to bolster economic growth and safeguard its foreign exchange reserves. These changes aim to enhance the competitiveness of local businesses and ensure the Pula’s stability.
Under the Bank of Botswana Act, the President, with recommendations from the Minister of Finance and in consultation with the Bank of Botswana, determines the Pula’s external value. The core objective of this policy is to keep the prices of Botswana’s goods and services comparable to those in international markets, including imports.
Botswana currently uses a “crawling peg” exchange rate system. This means the Pula is linked to a basket of currencies, reflecting Botswana’s trading partners. This basket includes the South African Rand and the International Monetary Fund’s (IMF) Special Drawing Rights (SDR), which itself is made up of the US Dollar, Japanese Yen, Chinese Renminbi, Euro, and British Pound. An annual “crawl rate” is applied to account for inflation differences between Botswana and its trading partners, helping to maintain price similarity over time.
The decision to adjust the policy comes amid several economic challenges. Botswana has experienced a contraction in its Gross Domestic Product (GDP) in both 2024 and 2025, largely due to a sharp decline in diamond mining output and slow growth in other sectors. This has led to a significant decrease in official foreign exchange reserves, as export earnings have fallen while import demand remains high.
To address these issues, the President has approved the following changes:
Downward Rate of Crawl Revised: The annual downward rate of crawl has been adjusted from 1.51 percent to 2.76 percent. This is expected to make Botswana’s goods and services more competitively priced internationally, while keeping inflation within the target range of 3-6 percent.
Wider Trading Margins: The Pula’s trading margin between the Bank of Botswana’s buy and sell rates for foreign currencies will increase from ±0.5 percent to ±7.5 percent. This aims to preserve foreign exchange reserves and encourage the development of an interbank foreign exchange market, reducing commercial banks’ reliance on the Bank of Botswana for foreign currency. The Bank of Botswana recently increased the threshold for foreign currency trading with commercial banks from USD1 million to USD5 million.
Currency Basket Weights Maintained: The weights in the currency basket will remain at 50 percent for the South African Rand and 50 percent for the SDR. This strategy helps moderate the Pula’s volatility against individual currencies, with the strong weighting of the South African Rand supporting the competitiveness of Botswana’s goods and services in the South African market, a key trading partner.
These adjustments are considered vital to sustain the competitiveness of domestic industries, enhance external financial stability, and protect official foreign reserves. While these measures are crucial, the Ministry of Finance emphasised the ongoing need to address structural issues and implementation challenges that hinder productivity and economic diversification. A collaborative effort from the government, private sector, and households is required to strengthen the overall resilience of the domestic economy.
For the average consumer in Botswana, the recent adjustments to the Pula exchange rate policy could have several practical implications:
Potentially More Affordable Exports (for those earning foreign currency): If you are an individual receiving income or remittances in foreign currencies (like US Dollars, Euros, or South African Rands), the revised downward crawl of the Pula (from 1.51% to 2.76%) means your foreign currency might now buy slightly more Pula. This could make goods and services within Botswana seem a bit more affordable to you.
More Competitive Local Goods and Services: The aim of the exchange rate adjustment is to enhance the international price competitiveness of goods and services produced in Botswana. This could mean that locally produced items might become relatively cheaper compared to imported goods, encouraging consumers to buy local.
Inflation Management: The policy adjustment is designed to be consistent with maintaining inflation within the objective range of 3-6 percent. This is good news for consumers, as it aims to prevent a rapid increase in the cost of living.
Potential for a More Stable Economy in the Long Run: The measures are intended to safeguard official foreign exchange reserves and strengthen the resilience of the exchange rate regime. While not a direct day-to-day impact, a stable exchange rate and healthy reserves contribute to overall economic stability, which benefits consumers by fostering a more predictable economic environment for jobs and prices.
Less Direct Impact on Day-to-Day Foreign Currency Transactions: The increase in the Pula trading margin between buy and sell rates for currencies and the higher threshold for commercial bank trading with the Bank of Botswana primarily impact how commercial banks interact with the central bank. For the average consumer buying or selling small amounts of foreign currency for travel or online purchases, the direct impact on the rates they receive at commercial banks might be minimal, though it could contribute to more liquidity in the interbank market over time.
Encouragement of Domestic Industry: If local goods become more competitive, it could stimulate domestic production and potentially lead to more job opportunities in the long term, indirectly benefiting consumers through a healthier job market.
