Botswana’s economic prospects have dimmed further as the Ministry of Finance cut its growth forecast for 2025 to a mere 0.4 percent, weighed down by sluggish global demand for diamonds and rising external pressures.
The International Monetary Fund (IMF) paints a grimmer picture, predicting a contraction in the economy next year and warning of worsening fiscal and current account deficits driven by declining mineral revenues and shrinking inflows from the Southern African Customs Union (SACU). Moody’s credit rating agency echoed these concerns, downgrading Botswana’s sovereign rating and cautioning that a prolonged downturn in the diamond sector is eroding the country’s fiscal resilience.
The IMF’s October 2025 World Economic Outlook anticipates a modest economic rebound in 2026, with growth projected at 3.1 percent. This recovery depends on a gradual revival in diamond demand, expanded output and value addition in non-diamond mining, increased domestic power generation, and reforms under the Botswana Economic Transformation Programme (BETP) designed to stimulate broader economic activity.
Despite this hopeful outlook, the IMF forecasts a 1 percent contraction in economic activity for 2025 before a slow recovery takes hold. The current account deficit is expected to widen to roughly 6 percent of GDP as export earnings weaken and SACU transfers dwindle, though a gradual narrowing is forecast in the years that follow.
Fiscal pressures are mounting. After the fiscal deficit climbed to 7.1 percent of GDP in the 2024/25 financial year, largely due to falling mineral revenues, the IMF expects it to deteriorate further to over 8 percent in 2025/26. The Fund attributes this to ongoing mineral income weakness and the government’s lack of clearly defined austerity measures.
Without decisive fiscal consolidation, accelerated diversification efforts, and tighter monetary policy, public debt is poised to surge over the medium term, the IMF warns. Continued current account deficits and capital outflows threaten to further drain foreign exchange reserves.
To counter these risks, the IMF calls for an ambitious medium-term fiscal consolidation strategy that would rebuild fiscal buffers while protecting vital investment and social spending. It suggests that a temporary, well-defined increase in the statutory debt ceiling could be justified if linked to credible consolidation plans and structural reforms.
The Fund also urges Botswana to broaden its tax base, improve tax administration, and boost non-mineral revenue collection. On the spending side, it recommends cutting public wage bills, better targeting social transfers, and enhancing governance and oversight of state-owned enterprises. Further reforms in public financial management—covering cash, investment, and debt management—are deemed essential, alongside tighter monetary policy to support the currency peg, limit capital flight, and rebuild reserves.
In October, Moody’s downgraded Botswana’s long-term domestic and foreign currency issuer ratings from A3 to Baa1, maintaining a negative outlook. The agency cited the government’s challenges in adjusting to a persistent structural downturn in the diamond sector, which accounts for about 30 percent of GDP and nearly 90 percent of the country’s goods exports.
Moody’s highlighted that the diamond slump has triggered economic contraction, weakened external buffers, and increased public debt, noting that the global downturn has persisted since 2023 with little sign of recovery. While Botswana’s governance has traditionally been strong, the agency said it is now under strain as the country grapples with adapting its fiscal and economic model.
The negative outlook signals the risk of further credit deterioration amid ongoing diamond sector weakness and the difficulty of identifying alternative sources of growth and foreign exchange. Although debt is expected to peak near 40 percent of GDP over the medium term, significant downside risks remain, including volatile SACU revenues, fragile diamond markets, structural economic rigidities, and coordination challenges within government.
With assets in the Government Investment Account largely depleted, Moody’s warned that Botswana faces heightened vulnerability to rising interest rates and increased debt servicing costs. The agency also lowered the country’s local and foreign currency ceilings, citing heavy reliance on a single revenue source and growing external imbalances.
Repeated drawdowns of financial buffers to cover fiscal deficits have severely diminished Botswana’s capacity to absorb shocks, Moody’s added. Despite diamonds continuing to generate foreign exchange, the sector’s prolonged weakness has widened the current account deficit and pushed reserves to historic lows, underscoring the urgent need for economic diversification and reform.