Botswana passes first credit rating test

Mbongeni Mguni | Wednesday September 16, 2026 06:00

The assessment by Moody’s, whose researchers visited the country two weeks ago, is expected soon.

In its assessment released shortly before midnight on Friday, S&P affirmed the country’s long term foreign and local currency credit rating at BBB-, whilst maintaining the negative outlook based on continued weakness in the global diamond industry and the related impact on the economy.

The decision is crucial for public finances, as a downgrade would have pushed the country to junk status, increasing the interest rates government pays on its debt immediately.

S&P researchers noted improvements in the country’s fiscal stability, an effort led by the Finance ministry and the Bank of Botswana.

“We think that after several years of rundowns, Botswana's external buffers have improved,” the researchers said. “Foreign exchange reserves increased by almost $1.5 billion to $4.8 billion by July 2026 from historical lows in June 2025. “SACU receipts, the relative recovery in diamond sales and revenue, portfolio market gains, and the government's foreign borrowings largely underpinned the foreign exchange increase. “Additionally, the adjustment of exchange rate policy parameters by the BoB has played a key role in incentivising market trading and stabilising official reserves.”

S&P researchers said the country’s relatively strong institutions and the economy's net external asset position support the investment-grade sovereign rating.

“General government debt is still comparatively low compared internationally, although it is increasing,” the researchers said.

Whilst the assessment gives government the breathing room to continue with fiscal consolidation efforts, S&P researchers noted that the outlook remained weak, largely due to the economy’s continued reliance on diamonds and the lack of a firm recovery in the sector.

“In our view, while stronger revenue and expenditure control allowed the government to narrow the fiscal deficit somewhat in the year ended March 31, 2026, fiscal pressures remain high, with the fiscal 2026 budget estimated at a deficit of 8.9 percent of GDP.”

The researchers said the global diamond market appears to have bottomed out and the industry was trying to achieve a new equilibrium, with a split of the market between high-value, large stones, and lower-value, smaller stones, which compete with lab-grown diamonds.

“In our view, both Debswana and De Beers altered their strategies because of the change in demand for natural diamonds. “In the past two years, the focus has been on mining efficiency, cost-cutting, and the marketing of higher-value, larger stones. “The new strategy appears to be somewhat successful, with improved demand in India bolstering demand, while global supply from producers outside Botswana is sharply reducing. “This stems from the decision to shut down or mothball mines in countries like Canada and South Africa,” the assessment reads.

The researchers warned that they would lower Botswana’s ratings if the country's fiscal and external performance proved materially weaker than estimated. This could happen, for instance, if fiscal consolidation falters and diamond demand falls further, leading to a weakening of Botswana's fiscal and external positions.

The ratings could be upgraded if Botswana's fiscal and external metrics improved beyond estimates, for example, due to a sustained fiscal consolidation effort or a rebound in diamond markets. Longer-term upside could also stem from successful implementation of policies to diversify Botswana's commodity-concentrated economy, exports, and tax base.