Botswana’s economic outlook revised to negative due to diamond market pressures: S&P Global

Investing.com -- S&P Global Ratings has revised Botswana’s economic outlook to negative from stable, citing external and fiscal pressures. The agency confirmed its ’BBB+/A-2’ long- and short-term sovereign credit ratings for the country. The decision reflects the challenges Botswana faces due to decreased global demand and prices for diamonds, which are pivotal to its fiscal revenues and exports.

The agency projects that without a significant fiscal effort by the government or a substantial increase in diamond prices and sales volumes, Botswana’s fiscal consolidation efforts will remain challenging. It forecasts government debt, net of liquid assets, to rise to 19% of GDP by 2028 from 3% in 2024.

On March 14, 2025, S&P Global Ratings also revised its outlook on the Bank of Botswana to negative from stable, affirming its ’BBB+’ long-term and ’A-2’ short-term issuer credit ratings on the bank. The ratings on the Bank of Botswana are equalized with the ratings on the sovereign, as the monetary authorities are considered analytically inseparable from the sovereign.

The negative outlook is influenced by the weak global demand for diamonds and depressed prices, which are likely to keep Botswana’s export and fiscal flows subdued. The negative outlook also reflects the potential further erosion of Botswana’s external and public balance sheets.

S&P Global Ratings could lower its ratings if Botswana’s fiscal and external performance proved materially weaker than its forecast. This could occur if diamond demand and GDP growth do not recover from their current lows, leading to further weakening of Botswana’s fiscal and external buffers. However, the outlook could be revised to stable if global demand and prices for diamonds rebound, substantially improving Botswana’s fiscal and external flows.

Botswana’s economy contracted by 3.3% in 2024, primarily due to a significant drop in diamond demand and prices. Despite the GDP contraction and sharp fall in diamond taxes and royalties, the new government for fiscal 2025-2026 unveiled a budget in February 2025 that plans for a still sizable overall deficit of about 7.6% of GDP.

Botswana is the world’s second-largest producer of natural rough diamonds (after Russia), and the diamond sector represents about 70% of exports, approximately a third of the government’s fiscal receipts, and about a quarter of GDP. The country’s economy is expected to rebound to positive growth from 2025 as global diamond demand improves and domestic government expenditure supports domestic demand, with real GDP growth forecast to average 3.9% per year in 2025-2028.

In February 2025, Botswana’s government signed an agreement with the global mining firm De Beers, extending mining and marketing rights. The deal allows De Beers, via Debswana (its 50/50 joint venture subsidiary with the government of Botswana), to continue mining in Botswana until 2054. The agreement ensures continued production for decades and solidifies Botswana’s position as a leading global diamond producer.

Botswana is also working on diversifying its economy beyond diamonds, with significant developments in the mining of other minerals, particularly copper, while also expanding tourism, meat, and other sectors. The government is focusing on critical infrastructure, including electricity and water access. Additionally, Botswana is strengthening its transportation, ICT, and tourism sectors. The non-diamond economy is projected to maintain growth with ongoing investments in key industries.

Despite a significant fiscal deficit in the fiscal year 2024-2025, mainly due to lower diamond revenue and high pre-election spending, the new government will target a return to fiscal discipline. Botswana’s foreign exchange reserves, including the Pula Fund, declined to an estimated $3.8 billion at the end of 2024. Despite the fall, foreign exchange reserves are projected to stand at over five months of current account payments in 2025-2028. Sizable external public sector assets are also important for maintaining Botswana’s crawling pegged exchange-rate regime.

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