BoB loses grip on monetary control as economists warn of looming crisis

Botswana’s Economic Crossroads: Navigating the ‘Impossible Trinity’

Botswana’s macroeconomic framework faces significant challenges, described as “unbalanced and unsustainable” in a recent analysis. The Bank of Botswana (BoB) is reportedly grappling with the effectiveness of its monetary policy tools.

Monetary Policy Under Pressure

The Econsult Botswana Economic Review for the third quarter of 2025 highlights concerns over the central bank’s diminished control. The report, co-authored by former BoB Deputy Governor Dr. Keith Jefferis, suggests that a combination of loose fiscal spending, low interest rates, and a fixed exchange rate regime has rendered the BoB’s traditional policy instruments less effective.

The ‘Impossible Trinity’ Dilemma

Economists point to Botswana’s current situation as an example of the “Impossible Trinity.” This economic principle posits that a country cannot simultaneously maintain a pegged exchange rate, an independent monetary policy, and free capital flows. Attempting to manage all three can lead to economic instability.

Potential for Instability

The Econsult report warns that an unbalanced macroeconomic policy framework could result in economic instability, with potentially adverse consequences for the nation. The interplay of fiscal policy, interest rates, and currency management appears to be creating a complex economic environment.

Summary: Botswana’s economic framework is reportedly unbalanced and unsustainable, with the Bank of Botswana facing challenges in monetary policy. A recent report highlights the country’s struggle with the “Impossible Trinity” of a pegged exchange rate, independent monetary policy, and free capital flows, warning of potential economic instability due to these intertwined pressures.