The Evolution of the Financial System in Botswana

One of the important determinants of economic development is the presence of a competent and effectual financial system. This paper presents the evolution of the financial sector of Botswana, specifically focusing on monetary policy, financial sector legislation, financial reforms and financial sector development trends. The financial system initially began with a financially repressive structure followed by financial sector liberalization that was instituted so as to enhance banking sector performance, increase interbank competition, promote access to credit facilities for development activities and increase national savings. Results from this study show that the introduction of financial liberalization led to increased financial development as evidenced by increases in interbank competition, access to credit facilities, the ratio of bank deposits to GDP (Gross Domestic Product) and increased banking sector stability and performance. In addition, savings have relatively increased after liberalization though the main contribution to savings is from Government, mainly from revenue from sales of precious minerals.