UDC faces mounting pressure

• ‘Agro-processing, manufacturing, tourism and knowledge-based services are new sources of employment and export earnings’ – AfDB

BAKWADI LEKOPANE

editors@thepatriot.co.bw

The Umbrella for Democratic Change (UDC) government is facing a difficult economic balancing act as it tries to deliver on its election promises while Botswana grapples with falling diamond revenues, rising public debt and shrinking fiscal space.

These challenges are highlighted in the African Development Bank’s Botswana Economic Outlook 2026 report released last week. It shows just how exposed Botswana remains to the performance of the diamond industry. The UDC came to power in October 2024 promising to improve living standards, create jobs, raise incomes and transform an economy that has depended heavily on diamonds for decades. Its election commitments included a P4,000 minimum wage, an old-age pension of P1,800 a month and the creation of 500,000 jobs, as well as a commitment to diversify the economy.

Even President Duma Boko was tongue tied when confronted by an SABC Political anchor, asking him if he had managed to create the jobs he promised before ascending power in 2024. “Not yet,” he mumbled, before labouring an explanation.

That moment alone sums up where the UDC government is, in terms of delivering their campaign promises. What complicates matters is that, the UDC government is now trying to deliver those promises in an economy under considerable pressure. According to the AfDB, Botswana’s real GDP contracted by 0.7% in 2025, compared with growth of 2.8% in 2024. The contraction was largely driven by weaker diamond production and subdued government spending.

The mining sector contracted by 10.7% in the year to September 2025, while diamond production fell by 11.4%. Weaker global demand for natural diamonds, competition from laboratory-grown diamonds, a 2.3% reduction in planned production and new US import tariffs have all added to the pressure. With diamonds accounting for around 30% of GDP and close to 80% of export earnings, the decline has quickly become a government problem as well as a mining-sector problem.

For the UDC, one of the biggest challenges is finding the money to deliver on its election commitments without putting further pressure on public finances. The AfDB reports that Botswana’s fiscal deficit widened to 9.5% of GDP in 2025, from 7.3% in 2024, after mineral revenues fell by 23.4%. Government revenues declined to 23.3% of GDP, while expenditure increased to 33.3%. Public debt rose from 33.1% to 40.7% of GDP, with government relying heavily on domestic borrowing to finance the deficit.

The government’s 2026/27 Budget projects a deficit of P26.35 billion, equivalent to 8.9% of GDP, while public debt is expected to move above the statutory ceiling during the financial year. That leaves the UDC with a difficult choice: how to meet the expectations created during the election while keeping government finances under control.

Jobs remain the biggest challenge. The promise to create 500,000 jobs is particularly ambitious in an economy where young people continue to face limited employment opportunities. Creating jobs on that scale will require more than government hiring. It will depend heavily on the private sector expanding, investing and creating new businesses. Yet SMEs already face difficulties accessing finance. Credit to the private sector is equivalent to only around 30% of GDP, compared with about 90% in South Africa.

For many smaller businesses, particularly youth- and women-led enterprises, collateral requirements and other lending conditions make it difficult to obtain the capital needed to expand. This is a problem because many of the sectors expected to drive diversification — including tourism, manufacturing, agro-processing and digital services — depend on a strong SME sector.

The UDC’s proposed P4,000 minimum wage presents another challenge. For workers, higher wages could mean greater purchasing power and improved household incomes. For businesses, particularly smaller companies operating on tight margins, higher wage bills could increase costs and potentially make new hiring more difficult.

The same balancing act applies to the proposed P1,800 old-age pension. Increasing pensions can provide much-needed support to older citizens, but it also creates a permanent expenditure commitment for government at a time when revenues are under pressure. The issue for the UDC is therefore not simply whether these promises are desirable, but whether they can be funded sustainably. The economic downturn has given greater urgency to the UDC’s commitment to diversify Botswana away from diamonds.

The AfDB identifies agro-processing, manufacturing, tourism and knowledge-based services as areas that could provide new sources of employment and export earnings. Botswana needs investment in infrastructure, skills, technology and finance before new industries can begin generating revenues on a scale capable of replacing diamonds. That means the UDC has to manage two competing pressures: provide relief to households now while investing in an economy that may only deliver significant returns several years from now.

The AfDB’s assessment also points to the importance of creating a business environment in which companies can grow. Improving access to finance, reducing regulatory barriers, strengthening public-private partnerships and encouraging investment will be critical if Botswana is to develop a stronger private sector. The implementation of National Development Plan 12 and the Botswana Economic Transformation Programme will therefore be central to the government’s diversification plans.

Investment in digital skills, research and development, renewable energy and climate resilience will also be needed if Botswana is to become more productive and competitive. The economic situation means the UDC is now being tested on two fronts: meeting the immediate expectations of voters while laying the foundations for longer-term economic growth.

Batswana voted for higher incomes, more jobs, stronger social protection and a more diversified economy. The problem is that the government has inherited an economy where the main source of revenue is weakening and the room to borrow and spend is becoming narrower.

The diamond downturn has therefore made the UDC’s economic agenda more difficult — but also more urgent. The government’s biggest task will be to ensure that efforts to deliver election promises do not deepen the fiscal problems, while making enough investment in the private sector to create new sources of growth.

Ultimately, the test for the UDC will be whether it can move Botswana from an economy that depends on diamonds to fund development to one where a diversified private sector generates the jobs, exports and revenues needed to sustain that development.