While Botswana’s economy was initially expected to perform better in 2024, buoyed by the anticipated recovery of the diamond industry in the latter half of the year, the reality has been quite different from what economists had projected at the start of the year.
Although the diamond industry faced challenges at the beginning of the year, a recovery was anticipated as the year progressed. As economist Gomolemo Basele from FNBB noted in early 2024, “As global growth improves from the second half of 2024 onwards, so will diamond demand and, by extension, Botswana’s growth prospects.”
However, he also cautioned that global recovery has been uneven and that risks remain significant.
Recent data from the Bank of Botswana confirms the downturn: real GDP shrank by 0.5 percent in the second quarter of 2024, compared to a 3.3 percent growth in the same quarter of 2023. This follows a 5.3 percent contraction in the first quarter, signaling that the country is in a recession. The economic slowdown is largely due to weaker performance in non-mining sectors and reduced external demand for mining outputs, particularly diamonds.
As Bank of Botswana Governor Cornelius Dekop explained, “Export earnings have declined, limiting government spending and impacting overall economic activity.” Dekop also indicated that economic activity remained subdued in the second half of 2024.
The October 2024 World Economic Outlook projects global growth at 3.2 percent for both 2024 and 2025, slightly below the 3.3 percent recorded in 2023. For Botswana, the Bank of Botswana forecasts a contraction in 2024, followed by a moderate recovery in 2025. This decline is partly due to a downturn in the diamond industry, which has been driven by weak global demand, though a recovery is expected in 2025.
In line with these projections, De Beers recently reduced its 2024 production forecast from 29–32 million carats to 26–29 million carats due to higher-than-expected inventory levels carried over from 2023. Debswana, Botswana’s joint venture with De Beers, revised its 2024 production target downward by 25.2 percent, from 23.8 million carats to 17.8 million carats. Data reveals that Debswana’s diamond production declined by 25.9 percent in the first three quarters of 2024, producing 13.7 million carats compared to 18.5 million carats during the same period in 2023.
Economists had earlier forecast Botswana’s GDP to grow by 3.8 percent in 2023 and 3.7 percent in 2024. Naledi Madala of Absa Bank had expected growth to be supported by an increase in fixed investment, particularly following the finalisation of a deal between the government and De Beers. However, following a 5.8 percent GDP growth in 2022, Basele had anticipated a 3.9 percent expansion in 2023, with average growth of about 4.5 percent through 2026.
Despite these projections, the actual performance has been disappointing. Inflation, which closed in 2023 at 3.5 percent, was forecast to rise to 5.1 percent in 2024, with risks associated with the Israel-Hamas conflict. However, inflation remained low, averaging 1.7 percent in November 2024.
The Bank of Botswana has taken steps to ease monetary policy in response to the economic downturn, reducing the Monetary Policy Rate (MoPR) twice in 2024—first in June, by 25 basis points to 2.15 percent, and again in August. These adjustments reflect the weaker-than-expected domestic and external economic conditions.
The 2025-2026 Draft Budget Strategy Paper (BSP) notes that inflation has fallen more quickly than expected, largely due to the deceleration of global energy prices.
However, the weaker-than-expected performance in the diamond sector has put pressure on government revenues, especially mineral revenues.
As a result, the fiscal outlook for the 2024/2025 financial year is more subdued than initially forecast. Total revenues and grants for this period are now estimated at P77.2 billion, with a significant drop in mineral revenues, which have been revised downward to P8.7 billion from the original estimate of P25.2 billion. Total expenditure and net lending are estimated at P95.7 billion. In response to the unfavorable revenue outlook, the government has decided to reduce recurrent and development budgets by 4 percent and 22 percent, respectively.
Consequently, the fiscal deficit is expected to widen significantly, reaching P18.6 billion (6.7 percent of GDP) in 2024/2025, up from the original budget forecast of P9.1 billion (3 percent of GDP). While mineral revenues have underperformed, other revenue streams, such as SACU receipts, have met expectations. SACU revenue stood at P13.62 billion during the first half of 2024, slightly exceeding the original estimate of P13.36 billion. Conversely, VAT revenue was P5.88 billion, falling short of the expected P7.57 billion, representing a shortfall of approximately P1.69 billion.
The economy faced significant headwinds in 2024, pulled down by a dismal performance in the diamond industry. However, there are signs that a modest recovery may be possible in the coming years, especially if diamond demand rebounds in 2025.
