(AfDB) - The African Development Bank has approved a $304 million loan to Botswana to support the southern African country in managing mounting fiscal challenges and implementing key governance and economic reforms.

The funding, approved by the Bank Group’s Board of Directors on Wednesday, will finance the Governance and Economic Resilience Support Programme (GERSP), a one-year general budget support operation covering the 2025/2026 fiscal year.

The facility aims to cushion Botswana from the financial shock triggered by declining diamond revenues, while advancing critical reforms to enhance fiscal transparency, boost revenue collection, and promote private sector-led growth. 

Botswana's economy contracted by 1.7% in 2024, primarily due to weak global demand for diamonds, which account for approximately 80% of the country's exports. The country’s fiscal deficit widened -- from a balanced budget in 2022/23 to 4.7% of GDP in the 2023/24 financial year–– and is projected to reach 6.7% in the current fiscal year.

“This operation comes at a critical time for Botswana," said Moono Mupotola, Deputy Director General for Southern Africa and Country Manager at the African Development Bank Group. "We will work with the new administration to implement reforms that will deepen fiscal sustainability, strengthen transparency, and create a more business-friendly environment for economic diversification." 

The GERSP is structured around two main pillars: Strengthening fiscal sustainability and transparency, and stimulating economic growth. It includes measures to increase domestic revenue mobilization, curb illicit financial flows, and enhance public expenditure efficiency and accountability. 

The program also targets support for micro, small, and medium enterprises, particularly those led by women and youth, to create jobs and reduce inequality.

The operation is a transitional measure to address short-term budget pressures while engaging with Botswana’s new government, elected in November 2024, on long-term development goals.

“The African Development Bank is committed to supporting Botswana’s ambitious socioeconomic development agenda through credible and transformational reforms, project and program financing, and continuous policy dialogue”, said Abdoulaye Coulibaly, the Bank’s Director of Governance and Economic Reforms.

The new loan builds on the Bank's prior support to Botswana, including the Economic Recovery Support Programme implemented in 2021-2022, which had $200 million cofinancing from the OPEC Fund for International Development.

The current program aligns with the Bank's Country Strategy Paper for Botswana (2022-2026), which prioritizes building economic resilience through support for economic governance and private sector development.