The Bank of Botswana’s Financial Stability Council reviewed domestic financial stability conditions and concluded that the financial system remains safe and sound, but faces rising risks from an increasingly uncertain macroeconomic environment. Key vulnerabilities flagged included a deteriorating fiscal position, slow economic growth, structurally lower levels of liquidity and increasing interconnectedness and funding concentration that could raise funding costs and weaken monetary policy transmission. Weaker diamond market performance was cited as adding pressure to fiscal and external sector stability, alongside historically low commercial bank liquidity linked to net foreign exchange outflows and slower government spending. In response to emerging liquidity shortages, the Bank of Botswana cut the primary reserve requirement to zero in December 2024, releasing about BWP 1.8 billion, and extended the maturity of repurchase agreements with commercial banks from overnight to seven days. The Council also pointed to the need to address structural factors such as persistent low liquidity, funding concentration, relatively large foreign currency holdings by commercial banks and the risk of sustained misalignment between market pricing of funds and monetary policy transmission. Ongoing workstreams include harmonising corporate governance principles, strengthening resolution and crisis management frameworks, monitoring cyber and climate risks, and progressing consumer protection and financial inclusion initiatives including Banking Regulations, Policyholder Protection Fund rules, the Non-Bank Lenders Bill, Electronic Payment Services Regulations and the Health Insurance Bill. It also noted progress on strengthening the AML/CFT/CPF framework, including follow-up to a June 2024 mock mutual evaluation, establishment of a National Coordination Office under the Financial Intelligence (Amendment) Act, 2025 and development of an AML/CFT Strategy for 2025–2030. A comprehensive assessment of the domestic financial stability risk profile is to be set out in the May 2025 Financial Stability Report, scheduled for publication in June 2025. The next Financial Stability Council meeting is scheduled for 6 November 2025.
Bank of Botswana 2025-05-09
Bank of Botswana Financial Stability Council highlights fiscal deterioration and low liquidity risks despite a sound financial system
The Bank of Botswana's Financial Stability Council assessed the domestic financial system as stable but noted vulnerabilities like a deteriorating fiscal position, low liquidity, and increased funding concentration. In response, the Bank reduced the primary reserve requirement to zero and extended repurchase agreement maturities. Ongoing initiatives include enhancing corporate governance, crisis management, consumer protection, and strengthening the AML/CFT framework.