S&P Global Ratings has downgraded Botswana’s sovereign credit rating, citing persistent weakness in global diamond demand that continues to weigh on the country’s economic growth prospects and public finances.
In a statement released on Friday, the ratings agency lowered Botswana’s long-term foreign and local currency sovereign credit ratings to BBB- from BBB, while also cutting the country’s short-term ratings to A-3 from A-2. The outlook on the ratings is negative, signalling the possibility of further downgrades if economic conditions deteriorate.
The downgrade reflects concerns that subdued diamond demand will continue to constrain Botswana’s export earnings, fiscal revenues and overall economic recovery.
“Global diamond demand will likely remain weak for longer, weighing on Botswana’s already-strained economy and public finances,” S&P said.
Diamonds remain central to Botswana’s economy, historically accounting for about 70% of exports, roughly one-third of government revenues and about a quarter of GDP. However, the sector has faced mounting pressure since late 2023 due to falling prices and declining demand.
According to S&P, the slump reflects multiple factors, including weaker demand from China, competition from lab-grown diamonds, shifting luxury spending patterns and broader weakness in global luxury goods markets.
Weak growth outlook
The ratings agency expects Botswana’s economy to recover only modestly in the coming years following two consecutive years of contraction.
S&P forecasts GDP growth of 2.5% in 2026, with growth averaging 3.2% between 2027 and 2029. This follows economic contractions of 2.8% in 2024 and 0.4% in 2025, driven largely by a sharp decline in diamond production.
Diamond output fell significantly in 2025, including a 56% year-on-year drop in production in the final quarter, which tipped the economy into a full-year contraction.
Debswana, Botswana’s largest diamond producer, has cut production in response to weak demand. Output declined to 17.9 million carats in 2024 and further to 15.1 million carats in 2025, and is expected to remain around 15 million carats in 2026, roughly 40% below 2023 levels.
Fiscal pressures mounting
S&P also warned that Botswana’s fiscal position has deteriorated significantly as diamond revenues have declined while government spending pressures remain elevated.
The agency estimates Botswana’s fiscal deficit widened to 9.3% of GDP in the 2025 fiscal year and will narrow only slightly to 8.9% of GDP in fiscal year 2026/27.
Persistent deficits are expected to drive a sharp increase in public debt. Botswana, which previously held a net asset position, is now projected to see net general government debt rise to 37.4% of GDP by 2029, compared with a net asset position in 2023.
Borrowing costs have also risen as the government increases reliance on domestic debt markets. Yields on three-month treasury bills climbed from 3.43% at the start of 2025 to above 10.5% by March 2026, according to S&P.
At the same time, Botswana’s fiscal buffers have been depleted. Assets in the Government Investment Account, the government’s savings fund, fell sharply to P846 million ($60 million) at the end of 2025 from P5.4 billion in mid-2024.
External accounts under strain
Botswana’s external position has also weakened amid declining diamond export revenues.
Foreign exchange reserves have fallen significantly over the past decade, dropping to $3.8 billion at the end of 2025 from $7.5 billion in 2017, although S&P expects a gradual recovery to $4.2 billion by 2029.
The Bank of Botswana has introduced several policy adjustments in recent years to protect reserves and stabilise the currency, including widening the trading band of the pula and increasing the rate of currency depreciation within its crawling-peg exchange rate system.
Reflecting the sovereign downgrade, S&P also lowered its ratings on the Bank of Botswana to BBB- from BBB, with a negative outlook.
Structural challenges
Beyond cyclical pressures in the diamond market, S&P highlighted deeper structural challenges facing Botswana’s economy.
The country remains heavily dependent on the diamond sector while grappling with high unemployment, particularly among young people. Overall unemployment stood at 21% in 2024, with youth unemployment reaching 28.9%.
S&P said the growing presence of lab-grown diamonds, which now account for about 20% of the global diamond market by value, poses a longer-term challenge to Botswana’s natural diamond-based economy.
At the same time, shifting consumer preferences and weaker demand in major markets such as the United States and China have added pressure to the sector.
Reform agenda
Despite the downgrade, S&P maintained Botswana’s investment-grade rating, citing the country’s strong institutional framework and long track record of prudent economic management.
The agency noted that Botswana’s democratic transition following the 2024 general election, which resulted in a change of ruling party, demonstrated the strength of the country’s institutions.
The new government has introduced several economic reform programmes, including the Reset Agenda, the National Development Plan 12 (NDP 12) and the Botswana Economic Transformation Programme, aimed at diversifying the economy beyond mining and promoting sustainable growth.
However, S&P cautioned that implementing these reforms will be challenging given the difficult economic environment and their substantial fiscal cost.
Outlook
The negative outlook indicates that Botswana’s rating could be lowered further if fiscal and external conditions weaken more than expected.
S&P said this could occur if diamond demand deteriorates further, slowing economic growth and undermining government revenue.
Conversely, the outlook could be revised to stable if Botswana experiences a sustained recovery in diamond markets or successfully implements policies to diversify its economy and strengthen fiscal and external metrics.