Moody's Downgrades Botswana Again as Diamond Slump Persists

(IDEX Online) - Moody's Ratings has downgraded Botswana's long-term government credit rating, citing the continuing impact of the diamond-market downturn on government revenues and public finances.

It cut Botswana's rating to Baa2 from Baa1 on September 25, its second downgrade of the country in less than a year.

Both are investment-grade ratings, but Baa2 is just one notch above Moody's speculative-grade Ba1 category, leaving Botswana two notches above junk status (borrowers would have a higher risk of failing to meet its financial obligations.

Lower diamond revenues, weaker-than-expected income from the Southern African Customs Union (SACU) and disappointing returns from newly introduced tax measures have been putting pressure on government finances.

The downgrade reflects what Moody's describes as a sustained deterioration in Botswana's fiscal resilience.

The long-term outlook was, however, upgrade from negative to stable, based on what it now sees as a stronger government response and the possibility of a sustained recovery in diamond revenues slowing the accumulation of debt. It therefore sees less immediate risk of a further downgrade.

Diamonds account for about one-third of Botswana's government revenue and three-quarters of its foreign-exchange earnings, according to Reuters. The country has been hit by weak global diamond demand, economic uncertainty and the growing popularity of lab grown diamonds.

Moody's expects Botswana's gross government debt to rise to 41% of GDP in fiscal 2027, from 31% in fiscal 2025. It also expects interest payments to reach about 5.9% of government revenue by 2027.

The downgrade comes despite an improvement in Botswana's near-term budget forecast.

Finance minister Ndaba Gaolathe (pictured) said on September 22 that the deficit for the financial year ending March 2027 was now expected to be 9.26 billion pula ($646m), or 3.1% of GDP, compared with a previous forecast of 26.35 billion pula, or 8.9% of GDP. The improvement was partly due to an 8.1 billion pula upward revision to revenue, including a larger-than-expected transfer from the Bank of Botswana.

Moody's nevertheless considers the improvement insufficient to reverse the longer-term deterioration.

The rating agency says Botswana's historical financial buffers have been substantially eroded by the prolonged fiscal deficits and weaker diamond revenues.

Its October 2025 downgrade noted that assets held in the government's investment account had been almost entirely depleted as the government drew on them to cover deficits.

The stable outlook means Moody's does not currently expect another rating change in the immediate future. It points to Botswana's institutional strength, domestic capital markets and still substantial foreign-exchange reserves as factors supporting the rating.