Building Economic Resilience in Botswana Through Climate Adaptation and Energy Reform

The IMF finds that climate change and electricity subsidies are increasingly undermining Botswana’s growth and public finances, with rising heat and drought already reducing productivity and posing large long-term GDP risks. Smart climate adaptation, power sector reform, and better energy pricing could sharply cut these losses while strengthening fiscal sustainability and resilience.

Prepared by the International Monetary Fund’s African Department, with analytical inputs drawing on research and data from institutions such as the World Bank, the Copernicus Climate Change Service, and the International Energy Agency, this Selected Issues Paper examines how climate change and energy sector weaknesses are jointly shaping Botswana’s economic future. The paper argues that Botswana is facing a convergence of risks: intensifying climate impacts are slowing growth and raising vulnerability, while electricity subsidies are placing increasing strain on public finances. Together, these challenges threaten long-term development unless addressed through coordinated adaptation and energy reforms.

How Climate Change Is Affecting Botswana’s Economy

Botswana has already warmed by more than 1.2°C compared to pre-industrial levels, faster than the Sub-Saharan African average. This matters because Botswana is a dry, water-scarce country where agriculture, ecosystems, and livelihoods are highly sensitive to temperature and rainfall. Climate projections show that temperatures will continue to rise under all scenarios, with warming of about 1.5–2.2°C by mid-century and potentially much more by the end of the century if global emissions remain high. Rainfall is expected to decline slightly over time, while extreme heat days and long dry spells become much more common.

These changes are not just environmental concerns; they directly affect economic performance. Higher temperatures reduce labor productivity, damage crop yields, and increase energy demand for cooling. Extreme heat has already lowered Botswana’s GDP growth in hot years, and over the past four decades, climate trends are estimated to have reduced GDP by about 2.4 percent compared to a world without warming. Looking ahead, the paper warns that without adaptation, long-term GDP losses could reach around 10 percent by the end of the century, putting pressure on incomes, jobs, and government revenues.

Adapting Smarter, Not Just Spending More

The paper stresses that adaptation can significantly reduce climate damage if it is planned well. A key message is that not all resilience-building investments are the same. Many development projects, such as better roads, irrigation, or improved access to finance, already make the economy more resilient. True adaptation spending should focus on the additional costs needed specifically because of climate change, such as larger water storage to cope with longer droughts.

Priority actions for Botswana include investing in climate services like early warning systems, climate risk mapping, and better data to track climate impacts. These tools help governments plan better and integrate climate risks into budgets and public investment decisions. Improving water efficiency is another top priority, since it addresses today’s shortages while preparing for future stress. The paper also highlights the importance of economic reforms that allow households and businesses to adapt on their own, alongside policies that protect vulnerable groups from the uneven impacts of climate change.

Fixing the Power Sector and Cutting Fiscal Strain

Electricity plays a central role in Botswana’s fiscal and climate challenges. Power generation is still dominated by coal, supported by expensive diesel generators and large electricity imports. The state-owned utility, Botswana Power Corporation, sells electricity at tariffs well below the cost of supply, leading to large losses that are covered by government subsidies. While electricity access is relatively high overall, rural areas remain far behind urban centers.

Even though Botswana does not directly subsidize fossil fuels, the paper estimates that “implicit” energy subsidies, because prices do not reflect environmental and health costs, amount to about 5 percent of GDP. These subsidies strain the budget, encourage inefficient energy use, and slow the shift to cleaner power. The government’s plan to expand renewable energy could reduce emissions, lower import dependence, and improve air quality, but the paper warns that these investments need careful planning to avoid oversupply and wasted resources. Gradually moving tariffs closer to cost-recovery, while protecting low-income households, is seen as essential for a financially sustainable power sector.

Aligning Energy Prices with Climate Goals

Beyond electricity tariffs, the paper highlights broader fiscal tools that can support climate and budget objectives at the same time. Applying standard value-added tax to diesel and petrol, which are currently zero-rated, would raise revenue and reduce incentives to overuse fossil fuels. Introducing a modest carbon tax that rises gradually over time could further cut emissions while generating new public revenues with little impact on economic growth. Importantly, these policies are found to be progressive in Botswana, since wealthier households consume more fossil fuels. Recycling revenues through public spending or targeted transfers can protect vulnerable groups and improve public acceptance.

The paper finds that Botswana can substantially reduce climate-related economic losses and fiscal pressures through smarter adaptation, power sector reform, and better-aligned energy pricing. Acting early and decisively would strengthen resilience, protect growth, and support a more sustainable development path in a warming world.