S&P Global Ratings has downgraded Botswana’s sovereign credit rating from BBB to BBB- with a negative outlook, signaling potential further downgrades if the fiscal environment does not stabilize. The world’s second biggest diamond producer had held steady with a BBB+ rating for at least five years, before it was downgraded to BBB last September. It has now been downgraded again, this time to BBB-.

Core Drivers of the Downgrade

• Diamond Dependency: The economy is heavily reliant on diamonds, which provide 70% of exports and one-third of government revenue.
• Market Volatility: A sharp decline in global demand—fueled by the rise of lab-grown diamonds, a slowdown in China, and reduced global luxury spending—has severely impacted national income.
• Fiscal Strain: The government deficit is projected to hit 8.9% of GDP for the 2026/2027 fiscal year, with net public debt expected to climb to 37.4% by 2029.

Economic Outlook

• Growth: After contractions in 2024 and 2025, a modest recovery of 2.5% is forecast for 2026.
• Reserves: Foreign exchange reserves have plummeted from $7.5 billion in 2017 to $3.8 billion at the end of 2025.

Institutional Strengths

Despite the downgrade, Botswana maintains an investment-grade status supported by:

• Strong democratic institutions.
• A history of prudent natural resource management.
• Relatively moderate debt levels compared to regional peers.