MOODY’S has downgraded Botswana’s credit rating to Baa1 from A3, highlighting the government’s struggle to adapt to a sustained decline in the diamond sector and mounting public debt, said Reuters.
The ratings agency warned that the economy remained excessively dependent on capital-intensive diamond extraction whilst diversification initiatives have stalled due to delayed reforms and vulnerability to climate risks.
Once celebrated as an African economic success story, Botswana faces severe difficulties as global diamond markets endure a protracted downturn. Demand has weakened amid worldwide economic uncertainty and growing consumer preference for laboratory-produced stones, said the newswire.
As the world’s largest diamond producer by value, Botswana continues to rely on gem exports for foreign currency earnings. However, sector fragility has widened the current account deficit and depleted reserves to unprecedented levels, according to Moody’s assessment.
The agency anticipates Botswana’s economy will contract by a further 6% in 2025 as it remains susceptible to global demand shocks, technological disruption from synthetic alternatives and shifting consumer tastes.
Last month, rival agency S&P reduced Botswana’s rating to BBB, projecting that depressed international diamond demand and prices would sustain weakness in the Southern African nation’s external and fiscal positions.
“The economy remains heavily reliant on capital-intensive diamond mining; diversification efforts lag due to reform delays, while exposure to climate shocks persist,” said Moody’s in a statement.
S&P maintained its negative outlook for the country, indicating the global diamond downturn was unlikely to reverse.
The consecutive downgrades reflect mounting concern amongst credit assessors about Botswana’s economic resilience as its traditional revenue source faces structural challenges from both market conditions and technological innovation in diamond production.
