S&P, one of three main credit ratings agencies whose opinions determine government’s cost of borrowing, maintained the country’s high sovereign credit ratings but revised the outlook from stable to negative.
The decision, announced on Friday evening, is the first time S&P has downgraded Botswana’s outlook since September 2020 when the COVID-19 pandemic upended the economy.
“The negative outlook reflects our view that weak global demand for diamonds and depressed prices will likely keep Botswana's export and fiscal flows subdued, complicating the government's fiscal consolidation agenda,” S&P researchers said. “The negative outlook also reflects that Botswana's external and public balance sheets could erode further.”
The local economy is battling to pull out of a slump associated with the downturn in diamonds, with growth last year expected to come in at a negative 3.1 percent. Government expects the economy to rebound to 3.3 percent this year, helped by a possible recovery in diamonds and other interventions.
S&P researchers, meanwhile, estimate that the economy shrank by 3.3 percent last year and will bounce back with 3.3 percent growth this year. Statistics Botswana will publish the country’s official GDP figures on March 28.
“We estimate Botswana's economy to have contracted in 2024, but we expect it to rebound to positive growth from 2025 as global diamond demand improves and domestic government expenditure supports domestic demand, with real GDP growth forecast to average 3.9 percent per year in 2025–2028,” S&P researchers stated.
The researchers said the country’s ratings could be lowered if Botswana's fiscal and external performance proved “materially weaker than our forecast”.
“This could happen, for instance, if diamond demand and GDP growth do not recover from their current lows, leading to further weakening of Botswana's fiscal and external buffers. “We could revise the outlook to stable if global demand and prices for diamonds were to rebound, substantially improving Botswana's fiscal and external flows. “Longer-term upside could also stem from a policy effort to diversify Botswana's commodity-concentrated export and tax base.”
Botswana has boasted one of sub-Saharan Africa’s highest sovereign credit ratings for decades, with diamond mining anchoring strong fiscal buffers and limiting the requirement for external debt. Traditionally, the country’s fiscal authorities have shied away from hard currency debt, as the fluctuations in the diamond industry would expose the country to currency volatility and the associated impact on debt cost.
However, the country has run rolling budget deficits since at least 2017–2018, due generally to declining mineral revenues and shocks such as COVID-19. The trend has drained key reserves and pushed up government’s debt pile to both domestic and external lenders.
“Past fiscal surpluses allowed Botswana's government to build up sizable financial buffers and maintain a net asset position. “However, in recent years, this has begun to erode, with the government having moved from a net asset position of six percent of GDP in 2023, to a net debt position of three percent of GDP in 2024, and we forecast net general government debt to rise to 19% of GDP by 2028,” S&P researchers stated.
However, the credit ratings agency maintained its faith in government’s ability to negotiate both the downturn in the budget and the slowdown in the economy.
“Our ratings on Botswana are supported by the country's strong institutional framework, which has underpinned the prudent management of the country's natural resource wealth over years; its strong external balance sheet; and comparatively low, albeit rising, government debt burden.”
