Global ratings agency Moody’s has downgraded Botswana’s sovereign credit rating from A3 to Baa1 and maintained a negative outlook, warning that the prolonged downturn in the diamond industry is eroding the country’s fiscal strength and growth prospects.
In September, S&P Global Ratings also cut Botswana’s long-term sovereign credit rating to ‘BBB’ from ‘BBB+’.
The downgrade reflects what Moody’s called the government’s “challenges in adjusting to the structural downturn in the diamond industry,” which accounts for about 30% of GDP and 90% of export earnings. The agency said the global diamond slump, worsened by the rise of lab-grown alternatives and weaker demand, is unlikely to reverse soon.
Moody’s now expects Botswana’s economy to shrink by 6% in 2025, after contracting 3% in 2024, as diamond production fell by 24% last year. The slowdown has widened the current account deficit and pushed foreign reserves to record lows, while repeated withdrawals from the Government Investment Account (GIA) have “almost entirely depleted” the country’s financial buffers.
“Although Botswana’s governance framework had previously been effective, it now struggles to adapt its economic and fiscal model,” Moody’s said.
The ratings firm noted that public debt could peak at 40% of GDP in the coming years, up from 25% five years ago, as the government borrows to cover widening deficits. It added that structural constraints, high youth unemployment, now at 38%, and delays in implementing the National Development Plan 12 have further weakened the reform agenda.
The negative outlook signals the risk of further downgrades if Botswana’s diversification efforts fail to offset falling diamond revenues. Moody’s said meaningful improvement would require sustained fiscal consolidation and progress under the Botswana Economic Transformation Programme (BETP).
Despite the cut, Botswana remains investment grade, supported by low external debt of 11.6% of GDP and a long record of prudent financial management. The country has never defaulted on its obligations since 1983.