S&P: Botswana ratings lowered to 'BBB-/A-3' on fiscal pressures tied to weak global diamond demand; outlook negative

S&P Global Ratings has lowered Botswana's long-term sovereign credit rating to 'BBB-' with a negative outlook, citing fiscal pressures linked to declining global demand for diamonds, which account for approximately 80% of the country's export earnings and a third of government revenue. The downgrade reflects weakened foreign exchange and fiscal buffers as competition from lab-grown diamonds erodes sales of natural gems, particularly in key markets like the U.S. According to S&P analysis, the fiscal deficit will reach 7.6% of GDP in 2025, with government debt rising to 34% of GDP by 2028.

The agency also revised its outlook on the Bank of Botswana to negative, aligning its ratings with the sovereign due to shared fiscal and external vulnerabilities. Despite a 3.3% GDP contraction in 2024, Botswana's economy is forecast to rebound modestly, averaging 3.9% annual growth from 2025–2028, supported by domestic spending and a renewed focus on diamond production through an extended partnership with De Beers as reported by financial analysts.

S&P noted that without stronger diamond prices or fiscal consolidation, Botswana's external and public balance sheets remain at risk. However, ongoing efforts to diversify into copper mining, tourism, and infrastructure could mitigate long-term risks. Foreign exchange reserves, though reduced to $3.8 billion by year-end 2024, are expected to cover over five months of current account payments through 2028. The ratings agency emphasized that a recovery in diamond demand or improved fiscal discipline could stabilize the outlook.