T-Bills & Government Bonds offer immediate opportunity with rising yields above 6%
Unit Trusts which are accessible to retail investors expected to benefit
PPP bill to open up infrastructure investment to pensioners
Bank deposits provide immediate opportunity for retail and pensioners due to banking liquidity challenges
Inflation-linked bonds add to the mix of diversity in the money markets, offering protection against inflation
Botswana’s economy is facing a challenging period, but for investors, this could translate into new opportunities.
Why It Matters:
The government is running a budget deficit of P24.7 billion in 2025, mainly because diamond sales have slowed down—a key revenue source for Botswana.
Government savings, known as the Government Investment Account (GIA), have dropped to just P1.9 billion in November 2024 from P11.3 billion in November 2023.
The government favors domestic borrowing as its main way to raise funds, so domestic debt will remain the largest part of its total debt.
Domestic debt is expected to rise to 16.6% of GDP from the current 14.6% in the coming year.
For investors, this means the government will likely borrow more money locally, issuing treasury bills (T-bills) and bonds. This could drive higher interest rates, making fixed-income investments more attractive.
Market Context: A Rising Interest Rate Environment
The Bank of Botswana (BoB) is raising a significant portion of funds for the government through T-bills.
As government borrowing needs increased toward the end of 2024, yields (returns for investors) climbed above early 2024 levels.
At the January 2025 auction, the government raised P4.6 billion, mostly through:
Treasury bills: P3.2 billion
Bonds: P1.4 billion
Government Borrowing Trends: The Numbers Speak
In January 2025, interest rates on T-bills reached their highest levels in a year:
The 12-month T-bill, which had the highest demand, saw an over-allotment—raising P1.65 billion, even though only P1.2 billion was initially offered.
Investor Insights: Understanding the Yield Patterns
An analysis by Investor Mail highlights key yield movements throughout 2024 and early 2025:
Early 2024: Yields started relatively high in January.
Mid-2024 Dip: Yields fell to their lowest in July-August 2024, with the 12-month T-bill hitting 2.501%.
Late 2024 Rebound: From September 2024 onwards, yields rose steadily, with a sharp increase in December 2024.
This pattern suggests that investors who entered the market during mid-2024’s lower-yield period are now seeing gains as yields rise.
Going forward, how much people invest in government bonds will depend on interest rates. If rates go up, investors may be more interested. The government is generally a price taker for bonds, and bond investors decide whether to participate or not. The types of bonds available will also depend on how much debt the government already has.
The government expects its total debt to be 22.9% of the country’s economy (GDP) by 2026/27, slightly lower than 23.8% in 2024/25.
Last month, the new government offered bonds that mature in 4, 6, and 18 years. Some of these aren’t common lengths, so investors compare them to the closest available bond length.
Where Investors Can Capitalise
Treasury Bills & Bonds: These fixed-income investments are now offering higher returns.
Unit Trusts & Pension Funds: Fund managers invest in T-bills (short-term) and bonds (long-term) on behalf of individuals and pension funds.
Low-Risk, Steady Returns: Money Markets-focused unit trusts have annualised returns exceeding 6%(according to the Botswana Stock Exchange (BSE), making them a good choice for conservative investors.
Bottom Line for Investors
Botswana’s economic situation may seem concerning, but it creates attractive investment opportunities in government securities. With yields on the rise, investors looking for stability and predictable returns can benefit from treasury bills, bonds, and unit trust investments.
Botswana Prepares to Launch Inflation-Linked Bonds
Botswana is moving closer to introducing inflation-linked bonds, a financial instrument that could attract investors and help the government raise much-needed funds.
The market is currently awaiting the official launch after a trial run was conducted at the end of the year to ensure the system and booking processes run smoothly.
Why the Push for Inflation-Linked Bonds?
Investor Advocacy after COVID: In the past year, regular government bonds didn’t sell as expected because investors demanded higher returns, pricing for value to compensate for factors that included inflation.
Bifm’s Advocacy: Botswana Insurance Fund Management (Bifm), the country’s largest and oldest investment manager, has been actively pushing for this new bond type.
Expert Endorsement: Economist Dr. Keith Jefferis previously argued that inflation-linked bonds would help the government attract investors and raise funds more effectively.
How Inflation-Linked Bonds Work
Unlike regular bonds, inflation-linked bonds are designed to protect investors from rising prices:
The bond’s value increases with inflation, meaning investors don’t lose purchasing power over time.
Interest payments are calculated on the adjusted amount, ensuring returns keep pace with inflation.
Example: How Investors Benefit
Imagine you invest $1,000 in an inflation-linked bond with a 2% interest rate:
If inflation rises by 5%, the bond’s value adjusts to $1,050.
Your 2% interest is then calculated on this higher amount, giving you better returns than a traditional bond.
Investors eager for inflation-linked bonds
With inflation eroding returns on fixed-income investments, an inflation-linked bond could be a game-changer for conservative investors looking to safeguard their money.
The market is now waiting for the official launch, and if successful, this instrument could reshape Botswana’s bond market while providing an alternative and attractive investment option in light of limited investment choices.
Inflation & Interest Rates in 2025
Post-COVID Inflation Surge: Inflation spiked after COVID-19, affecting bond pricing. However, in 2025, the Bank of Botswana expects inflation to fall within its target range of 3% to 6% after it fell below 3% in 2024.
Stable Policy Rates Expected: The market does not anticipate changes to the current policy rate of 1.9%, which remains lower than regional peers.
Bank Strategy & Market Moves:
Some large banks have doubled their investment securities based on expectations that interest rates will stay low.
Banks are also exploring opportunities in foreign markets, engaging in swaps to take advantage of interest rate differentials.
Investors will be eyeing regional markets
As rates remain low and banks are positioning themselves strategically to leverage global opportunities, it's a signal that investors should watch both local and regional markets closely.
Pension Fund to inject economy with P2bn
The pension funds are expected to see significant capital inflows in the coming year in line with the latest pension fund rules.
Market Shifts;
Capital Repatriation: Pension funds are projected to bring back P2 billion by the end of 2025, though this could vary depending on asset price performance.
Subscription vs. Retirement Trends: Part of the inflows will be determined by new subscriptions and the rate of retirements.
Growth in Fund Size: The latest data shows pension funds currently stand at 42.6% of onshore investment, with a target of 44% by year-end.
As pension funds grow, the allocation of assets will play a crucial role in shaping Botswana’s investment landscape, with new asset classes like infrastructure funds being added to regulation.
PPP bill to open us an opportunity for pensions
Infrastructure investment is emerging as a key area of interest, particularly as the government faces financial constraints due to declining diamond sales.
Dynamics;
Industry Gaps: Botswana has yet to establish an infrastructure fund, making the upcoming Public-Private Partnership (PPP) Bill a crucial step in channeling funds into the sector.
Government Strategy: With reduced diamond revenues in 2024, infrastructure spending will be limited to near-completion projects, while new developments may be delayed to avoid a larger budget deficit.
Pension Fund Interest: Infrastructure investment is a priority for pension funds, as they seek long-term, stable returns for pensioners.
Key Leadership Move: To fast-track infrastructure deals, the government has appointed Naledi Madala, an experienced banker and policy advisor, as Senior Policy Advisor at the Ministry of Finance. She is expected to lobby private sector involvement in infrastructure development.
Learning from Global Models: Botswana hopes to adopt successful PPP approaches from Europe and the U.S., with the bill creating clear regulatory guidelines to attract private investors.
Challenges and Market Risks
Low Infrastructure Investment Ranking: Botswana ranks 14th out of 18 countries in the region and 88th out of 104 globally in Fitch’s Infrastructure Risk/Reward Index, largely due to its small market size and limited investment opportunities.
Regulatory Hurdles: Pension funds have been hesitant to invest in infrastructure due to a lack of regulation. NBFIRA mandates pension funds to invest in infrastructure through a designated fund which is yet to be established.
When large amounts of money return to Botswana’s financial system, they often sit in banks for a while before being put into high-return investments.
Where Was the Money Supposed to Go?
Infrastructure Investment Plans: Originally, these returning funds were meant to go into infrastructure projects, as per the previous government. Any delay in passing the PPP bill—which is meant to encourage private companies to help fund infrastructure—could slow things down even more.
Delays in Construction: In addition to regulation, infrastructure projects take time to plan and execute, a lot of this money won’t be deployed immediately.
What Happens to the Cash in the Meantime?
Sitting in Banks: While waiting to be invested, these funds remain in banks, adding to the overall liquidity in the financial system.
Short-Term Investments in Money Markets: Since cash earns very little return, fund managers may temporarily move funds into money markets, where they can earn some interest while waiting for better investment opportunities.
Challenges in Bringing New Investments to the Market: Bifm’s CEO Clair Mathe-Lisenda previously said it takes time for the investment industry to develop new financial instruments and introduce them to the market.
Banking Liquidity Challenges and What It Means for Investors
Banks in Botswana have been struggling with cash shortages which affects how easily they can lend money.
This is due to foreign currency outflow, slower government spending, and the government borrowing more money through bonds, according to the Bank of Botswana.
Banks have also been giving out a lot of loans, which has reduced the amount of cash they have on hand, according to Dr Jefferis.
As pension funds repatriate their funds, this could create opportunities in areas like cash, although this is generally the last resort of investment for pensioners.
The gravity of the challenge:
Loosening Cash Rules: To help banks, the Bank of Botswana (BoB) changed a rule that required banks to keep a certain amount of cash in reserves. Before, banks had to keep 2.5% of their deposits aside, but now they don’t have to keep any, allowing them to use that money for lending and other needs.
Short-Term Loans (Repos): The BoB is also giving banks quick cash through "repos" (repurchase agreements).
Here’s how it works:
The central bank gives cash to banks when they are running low.
In exchange, banks give the central bank some of their bonds as collateral (a promise to pay back).
The banks later buy back their bonds, but at a slightly lower value, which is how the central bank makes a small return.
Where Do Pension Funds and Investors Fit In?
New Role for Pension Funds: Traditionally, De Beers (a major diamond company) brought in a lot of money that helped with liquidity, but with weak diamond sales, that cash flow has slowed. This means pension funds could become an important source of money for banks and the economy as they are net savers.
Investment Opportunity in Deposits:
When banks have plenty of cash, they set interest rates on deposits, and investors take whatever they get.
But when banks are short on cash, they compete for deposits, which means investors and fund managers can negotiate better interest rates.
Fund managers also offer unit trusts to retail investors, giving investors a way to earn steady returns even during liquidity shortages.
Botswana’s Property Market is Overheating
With few investment options in Botswana, the Botswana Public Officers Pension Fund (BPOPF)—the country’s biggest pension fund—has poured a lot of money into real estate.
While this helps drive development, property experts warn that too much money chasing too few properties is inflating prices, making real estate investments more expensive and less attractive.
According to Letlole La Rona CEO Kamogelo Mowaneng, excess liquidity in real estate has pushed prices higher. This makes it difficult for investors to find fairly priced properties.
“With the change in rules of PRF2, there's obviously an increase in funds. We've seen that there are a lot of local property investors that have come up in the market, so there's excess liquidity in the real estate sector,” Letlole La Rona CEO Kamogelo Mowaneng said last year during the financial results announcement.
“We're seeing that the prices of the properties are going to go up and have started going up. There are a number of deals that have actually come to our table but have not even gone through because there's a huge discrepancy because between what the seller wants and what we're willing to pay from a fundamental perspective.”
Looking Beyond Botswana:
With local property prices becoming too high, Letlole La Rona is now considering investing in real estate outside the country where valuations may be more reasonable.
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