StanChart sees higher risk of ratings downgrade
Mbongeni Mguni | Monday June 8, 2026 06:00
S&P is due to unveil a ratings decision on the country in September, following a historic downgrade in March, which landed Botswana just one notch above junk status. Junk status is the level at which sovereign debt is considered speculative by international investors, meaning funders place more doubt on the country’s ability to repay and thus apply higher premiums on any debt disbursed.
Moody’s traditionally announces its decisions in October.
Emmanuel Kwapong, Economist, Africa at Standard Chartered, in a research article shared with BusinessWeek, said that with authorities yet to implement key structural reforms to ease fiscal, large fiscal deficits were likely to persist, and public debt was unlikely to stabilise in the near term.
The reforms include wage-bill rationalisation and greater efficiencies at State Owned Enterprises, part of an outlay of initiatives promised by the Finance Ministry in the past two budgets.
Kwapong said elevated interest rates and weaker growth are also darkening the country’s debt dynamics.
“With both Moody’s (Baa1) and S&P (BBB-) maintaining negative outlooks after downgrades in October and March, respectively, we see a high likelihood of at least one downgrade at the September reviews, most likely by Moody’s. “An S&P downgrade would strip Botswana of one of its investment-grade ratings for the first time since its initial rating in 2001,” Kwapong said.
Junk status for Botswana would be a hard blow, given the country’s ambitious P500 billion Botswana Economic Transformation Programme (BETP). The programme, which represents government’s main push for economic transformation in the next ten years, is private sector-led, but state-backed and would likely struggle to secure appropriately priced capital in the wake of a downgrade.
Kwapong said the risk to the country’s sovereign credit rating was linked to the faster uptake of public debt.
“In March, parliament approved a bill increasing the statutory debt ceiling to 60% of GDP (from 40%) to accommodate higher borrowing. “The authorities expect public debt to reach 44.7% of GDP in FY27 from about 34% in FY26. “The IMF expects the higher debt ceiling to be breached by 2030 in the absence of corrective measures,” he said.
Standard Chartered also raised its forecast for the country’s deficit in the current financial year to 10.3% of GDP, from 4.5 percent, citing a more conservative view on revenue mobilisation. Government expects the 2026–2027 deficit to come in at P26.4 billion or 8.9 percent of GDP.
“Our wider deficit forecast than the government’s 8.9 percent target largely reflects a more conservative view on revenue mobilisation,” Kwapong said. “While new tax measures – including a three percentage point increase in corporate income tax, higher income tax for top earners and fewer zero-rated VAT items – are due to be implemented this fiscal year, weaker domestic economic activity is likely to limit the yield of these measures. “In addition, a muted recovery in the diamond sector is likely to weigh on mineral revenues, which averaged about 26% of total revenue over the past five years.”
The economist said the Middle East conflict is likely to exacerbate Botswana’s existing macroeconomic challenges, which stem from a prolonged diamond-sector weakness. Stanchart now expect a more subdued recovery in the diamond sector, as the conflict weighs on global growth and discretionary spending in key diamond end-markets.
Higher energy prices are also feeding into domestic inflation, lowering real incomes, Kwapong said.