Moody’s Investors Service (Moody’s) released an update of the sovereign credit rating for Botswana. The rating agency affirmed the Government of Botswana’s long-term local and foreign currency issuer ratings at “A3” for 2025 but downgraded the outlook on the country from stable to negative.
Botswana’s credit ratings, therefore, remain firmly investment grade. The negative outlook is on account of Moody’s expectation that weak global demand and depressed prices for diamonds will lead to a rapid increase in government debt and weakening debt affordability. This will delay implementation of the fiscal consolidation agenda and the rebuilding of buffers.
According to Moody’s, the affirmation of the A3 rating is supported by Botswana’s moderate debt burden and strong debt affordability, that is, ability to repay its debt, as well as low geopolitical and political risks, highlighted by the peaceful power transition following the 2024 elections. Moody’s indicated that the Government has the mandate and political capital, thus authority to implement fiscal consolidation measures, control growth in the wage bill and rationalize funding of state-owned enterprises. Furthermore, the Government has capacity to increase tax revenues to levels closer to regional peers. Moody’s pointed out that these measures could strengthen fiscal consolidation and help stabilise the country’s debt burden. In addition, the Rating Agency indicated that the commitment by Government to implement economic reforms to reduce reliance on the volatile diamond sector and support private sector-led growth, thus raising the possibility of lower deficits and stronger long-term growth potential, could also have a positive impact on the ratings.
Moody’s indicated that the negative outlook could return to stable if the fiscal buffers, public debt burden and debt affordability were to improve. However, this would require the adoption and implementation of effective fiscal consolidation measures or a prolonged recovery of the diamond sector. That notwithstanding, Moody’s was clear that a rating upgrade is unlikely in the near term given the negative outlook on the back of weakening fundamentals. Conversely, a rating downgrade could arise if Government’s policy responses failed to contain the deterioration in the debt burden and improve debt affordability. Additionally, evidence of financial constraints, highlighted by greater reliance on expensive funding sources that weaken debt affordability would lead to a rating downgrade. Lastly, Moody’s indicated that a structurally weaker growth outlook or a material deterioration of the external position due to a more prolonged downturn in the diamond sector could also lead to a downgrade.
On remedial measures, Moody’s expects the Government to implement fiscal consolidation through measures such as a reduction in development spending, controlled growth in the wage bill, rationalisation of transfers to state-owned enterprises, and increasing tax revenues through tax adjustments and broadening the tax base. Furthermore, Government should increase its domestic borrowing to reduce the cost of credit, to ensure debt affordability even as the debt level rises. All these, measures could help Botswana to maintain the positive ratings and improve the outlook.
These ratings update highlight the importance of maintaining strong institutions and policy frameworks that deliver macroeconomic stability. The ratings also emphasise the need to ensure successful implementation of economic structural transformation and policy reforms by
Government. These efforts are necessary to accelerate economic diversification and industrialisation, rebuild fiscal buffers and, ultimately, strengthen economic stability and resilience. In this regard, it is imperative for Government and related institutions to remain steadfast in implementing structural and policy reforms and restoring fiscal discipline.
