Botswana credit rating nears 'junk status' after S&P downgrade
Lewanika Timothy | Wednesday March 18, 2026 06:00
In a decision announced last week, the ratings agency lowered the country’s long-term foreign and local currency sovereign credit ratings to BBB- from BBB, whilst the short-term rating was cut to A-3 from A-2.
The outlook on the rating was revised to negative, signalling the possibility of further downgrades if fiscal conditions continue to deteriorate.
The downgrade leaves Botswana just one notch above junk status, the threshold at which sovereign debt is considered speculative by international investors.
A further downgrade would push the country below investment grade, potentially raising borrowing costs for government and state-owned entities.
Falling into junk territory could also limit access to global capital markets, as many pension funds and institutional investors are restricted from holding debt rated below investment grade.
That would likely force Botswana to offer higher interest rates to attract lenders and could trigger capital outflows.
“The downgrade reflects our view that global diamond demand will likely remain weak for longer, weighing on Botswana's already-strained economy and public finances,” the ratings agency said in its report.
This matters because many global pension funds, insurers, and sovereign funds are restricted from holding non-investment-grade debt. When a country slips into junk territory, those investors may be forced to sell their bonds, which pushes borrowing costs higher.
The agency warned that weak demand for natural diamonds, combined with structural shifts in the global jewellery market, continues to undermine Botswana’s export earnings, government revenues, and economic growth prospects.
The ratings agency estimates that Botswana’s economy contracted for a second consecutive year in 2025 and expects only a modest recovery ahead.
“We expect Botswana to have only a modest economic recovery in 2026 of 2.5 percent and an average of 3.2 percent over 2027–2029 following output contractions of 2.8 percent in 2024 and 0.4 percent in 2025,” S&P added.
The economic slowdown has been exacerbated by a sharp drop in diamond production. During the final quarter of 2025, output fell by 56% year on year, pushing the economy into a full-year contraction.
The agency also warned that Botswana’s fiscal position has deteriorated as mineral revenues decline, whilst government spending pressures remain elevated.
“In the absence of significant policy adjustments, we project net general government debt to reach 37.4% of GDP by 2029, compared with a net asset position before 2023,” the agency said.
Despite the downgrade, Botswana retains its investment-grade rating, with S&P citing the country’s strong institutions and track record of prudent economic management as key strengths.
“The country’s strong institutional framework has underpinned the broadly prudent management of natural resource wealth over several decades,” the agency said.
However, S&P cautioned that Botswana’s heavy dependence on diamonds continues to expose the economy to external shocks when global demand for the stones weakens.
A BBB- rating with an A-3 short-term grade places Botswana at the lowest rung of investment-grade credit ratings, indicating that the country still has adequate capacity to meet its financial obligations but faces increased vulnerability to adverse economic conditions.