Its not you, its me: an analysis of Multilateral Bank Finance in Botswana

Keseabetswe, Lorato

Its not you, its me: an analysis of Multilateral Bank Finance in Botswana

Thesis / Dissertation

2025

Publisher

University of Cape Town

Department

Graduate School of Business (GSB)

Faculty

Faculty of Commerce

Abstract

Multilateral Devebelopment Bank debt is hailed for its positive relationship to economic growth, represented by Gross Domestic Product. Botswana has a long history of demonstrating many positive attributes at macro and micro economic level that would typically attract multilateral bank funding, however the country maintains one of the lowest debt to GDP ratios on the continent. This study investigates the whether there is a direct relationship between Multilateral bank finance and key macro indicators in Botswana. Using Qunatitative research methodology, the research uses annual time series data from 1986 to 2023, and estimation techniques such as Autoregressive Distributed Lag (ARRDL) cointegration model, Unit Root, Error Correction Model and other diagnostic tests. The study's findings reveal a nuanced relationship between Botswana's macroeconomic conditions and its MDB debt accumulation. In the long run, trade balances significantly impact external borrowing, while economic growth, foreign exchange reserves, and government expenditure remain insignificant. In the short run, economic growth and trade balances exhibit statistically significant effects on borrowing, whereas foreign exchange reserves and government expenditure remain insignificant. These findings reinforce the role of external trade conditions in Botswana's debt accumulation while highlighting the country's cautious fiscal approach. Unlike many developing nations where economic growth, public expenditure, and foreign reserves directly influence external borrowing, Botswana's multilateral bank financing patterns are primarily shaped by its trade balance and counter-cyclical debt policies. The findings of this study have important policy implications and recommendations for Botswana, which are targeted towards diversification of its export base, efficient use of its resources including reserves, and finally, better negotiated positions with MDB loan terms given the country's strong credit rating. Botswana's approach to multilateral bank finance reflects a well-managed and prudent economic strategy that balances the need for external support with long-term fiscal sustainability.