Botswana faces a high likelihood of another sovereign credit rating downgrade at the September review cycle, according to Standard Chartered Bank. The bank warns that rising inflation, weaker economic growth, and widening fiscal deficits are placing increasing pressure on the country’s investment-grade status.
In a recent research note, Standard Chartered states that the downgrade is most likely to come from Moody’s, which currently rates Botswana at Baa1 with a negative outlook. However, the bank warns that a downgrade by S&P Global would have greater consequences. Such a move would leave Botswana with only one remaining investment-grade sovereign rating, “for the first time since its initial rating in 2001,” noted Standard Chartered economist Emmanuel Kwapong in the note.
S&P currently rates Botswana at BBB-, just one notch above sub-investment grade. Both Moody’s and S&P assigned negative outlooks following downgrades in October 2025 and March 2026, respectively.
Standard Chartered also projects the fiscal deficit for the year ending March 2027 at 10.3 percent of GDP, above the Ministry of Finance’s own target of 8.9%. The bank attributes the gap primarily to weaker revenue mobilisationprospects.
New tax measures contained in the 2026 budget—including a three percentage-point increase in corporate income tax, higher marginal rates for top earners, and fewer zero-rated VAT items—are expected to underperform their revenue targets due to “weaker domestic economic activity.”
Kwapong further noted that structural reforms capable of reducing pressure on government finances—such as reducing public sector salary costs and reforming state-owned enterprises—have yet to be implemented. This increases the likelihood that large deficits will persist.
Standard Chartered also cut its 2026 real GDP growth forecast for Botswana to 3.0 percent, down from a prior estimate of 4.5 percent, and trimmed its 2027 forecast to 3.5 percent from 3.9 percent. The bank cited the impact of the Middle East conflict on global growth and on discretionary spending in key diamond end-markets as the primary driver of the downgrade.
Compounding the fiscal and growth challenges is a sharp deterioration in the inflation outlook. Inflation accelerated to 10.3 percent in April, up from 4.2 percent in March. As a result, Standard Chartered revised its average inflation forecast for 2026 upward to 10.0 percent from a prior estimate of 5.3 percent, “driven primarily by fuel price pass-through,” Kwapong noted.
Given these pressures, Standard Chartered expects the Bank of Botswana to continue raising interest rates. The bank forecasts that the Monetary Policy Rate (MoPR) will reach 8.5 percent by the end of 2026. The Bank of Botswana raised rates by 200 basis points at its April Monetary Policy Committee meeting, after having held rates steady across three consecutive meetings. However, Standard Chartered says additional tightening will nonetheless be required.
“We think a further 200bps rate hike may be needed to correct the misalignment. However, we then expect the BoB to move beyond recalibration and tighten policy with a further 100bps hike to limit the risk of inflation expectations becoming de-anchored amid rising core inflationary pressures,” Kwapong said.
Despite rising inflation and a weaker economic outlook, Standard Chartered does not expect the government to accelerate the depreciation of the Pula. The bank notes that authorities are likely to prioritise price stability over exchange-rate adjustments, as a weaker currency would make imports more expensive and could worsen inflation.
