S&P Global Ratings has recently downgraded Botswana's sovereign credit rating from BBB to BBB- while also assigning a negative outlook. This decision comes in response to the prolonged weakness in global demand for diamonds, which are a cornerstone of Botswana's economy, accounting for approximately 70% of the country's exports and about one-third of government revenue. The slowdown is largely attributed to diminished sales from China, a contraction in global luxury spending, and increased competition from lab-grown diamonds, which has further strained the diamond market.

The downgrade reflects concerns about Botswana's fiscal stability, with projections indicating a budget deficit of 8.9% of GDP for the 2026/2027 fiscal year, slightly better than the estimated 9.3% deficit from the previous year. Furthermore, net public debt is expected to rise significantly, forecasted to reach 37.4% of GDP by 2029, reversing the prior trend where the country had a net asset position. This financial strain poses challenges to the government's spending plans and overall economic health as reliance on the diamond sector continues.

In terms of economic growth, S&P anticipates a subdued outlook, with GDP expected to contract by 2.8% in 2024 and again by 0.4% in 2025. However, a recovery is anticipated in 2026 with a growth rate of 2.5%, alongside an average growth projection of around 3.2% through to 2029. The implications of this rating downgrade may resonate through Botswana's public finances, potentially necessitating adjustments in policy to mitigate the impact of decreasing diamond revenues and foster a more diversified economic foundation for the future.