Botswana’s Next Credit Rating Battle …will be won on results

With the next sovereign credit rating reviews on the horizon, Botswana faces the task of convincing rating agencies that the fiscal consolidation measures and debt-management strategy being implemented by Government are credible and sustainable enough to avert another downgrade.

Responding to questions from this publication, Bank of Botswana Governor Lesego Moseki confirmed that Government had recently completed a review with S&P Global Ratings, with fiscal consolidation featuring prominently in the discussions.

“As the Bank, we believe that Government is taking the appropriate action, and they did put the case forward on what the Government is doing in terms of consolidation,” Moseki said on Thursday during a question-and-answer session following the Bank’s latest monetary policy decision.

Firm Grip on Public Spending

Government has already tightened its grip on public spending, with expenditure restraint helping to contain the fiscal deficit. At one point, however, Government accumulated arrears from unpaid invoices, although these appear to have since been cleared.

The tighter control of spending has helped steer the public finances towards calmer waters. Economists view the early progress as a welcome indication that the fiscal position may finally be changing course.

However, a bumper central bank dividend and rising public debt suggest that significant risks remain, with the journey towards fiscal stability far from over.

Assessing Debt Levels

Speaking during a local podcast, economist Keith Jefferis noted that S&P Global Ratings has been particularly critical of Botswana’s rising debt levels, despite the country maintaining a relatively lower debt-to-GDP ratio than some regional peers.

Botswana’s public debt stands at around 40 percent of GDP, compared with about 80 percent for South Africa.

Jefferis, however, argued that the debt-to-GDP ratio alone does not provide a complete picture of the pressure debt places on the public finances. Greater attention, he said, should be paid to the proportion of Government revenue or expenditure being absorbed by interest payments.

“Just looking at the percentage doesn’t tell you much. It’s a bigger story than that. We want to look at what proportion of the budget gets spent on paying for the debt,” Jefferis said.

According to Jefferis, Botswana’s debt-servicing costs have risen sharply in recent years as both the level of debt and the cost of borrowing have increased.

In 2019, Government was paying about 1 percent on Treasury bills and around 5 percent on long-term government bonds. This year, he said, those rates have risen to about 11 percent for Treasury bills and 13 percent for long-term debt.

“If your debt is going up and the cost of debt is going up, if that situation continues, then that would mean about 10 percent of government spending goes to interest, which is the same size as the public health budget. That starts squeezing everything else,” he said.

In the last review, S&P Global Ratings downgraded Botswana’s long-term foreign- and local-currency ratings from 'BBB' to 'BBB-' and assigned a negative outlook, leaving the country one notch above junk status.

Moseki said the outcome of the S&P review is expected by mid-September, while the Bank of Botswana engages with Moody’s the same month.

StanChart Anticipates Moody’s Downgrade

Moody’s currently rates Botswana one notch above S&P, leaving some room for flexibility, according to Jefferis. However, the agency has also taken a more cautious view of the country’s creditworthiness.

In its most recent review, Moody’s downgraded Botswana’s long- and short-term issuer ratings from A3 to Baa1 and maintained a negative outlook.

The prospect of a further downgrade has also been flagged by Standard Chartered economist Emmanuel Kwapong. In a recent research note, Kwapong said a downgrade was most likely to come from Moody’s, which currently rates Botswana at Baa1 with a negative outlook.

Eyes on BETP

Moody’s has previously singled out the Botswana Economic Transformation Programme (BETP) as a key factor in the country’s efforts to strengthen its economic outlook, saying Botswana’s best hope lies in the ambitious transformation programme .

The agency has indicated that successful implementation of the plan could eventually help stabilise the sovereign rating.

Bank of Botswana Deputy Governor Dr Kealeboga Masilila pointed to the need to accelerate the implementation of economic transformation initiatives to avoid a further downgrade,

“This is very critical in terms of relevant areas of energy, water reticulation, tourism, etc. Those provide the base for generating higher rates of economic growth and diversification,” Masilila said when answering questions from this publication.

BETP progress

Speaking to veteran journalist Spencer Mogapi, Finance Minister Ndaba Gaolathe also acknowledged that rating agencies would be looking for tangible evidence of economic diversification.

The BETP represents a significant step towards that objective, combining private-sector investment projects with public infrastructure projects, alongside legal and regulatory reforms aimed at supporting a more diversified economy.

Government has identified six economic sectors and three social sectors as areas with significant potential for growth and diversification.

Gaolathe said the BETP is also an important demonstration of Government’s growing capacity to execute projects and remove barriers to investment.

“This capacity to execute is what we need to diversify the economy,” Gaolathe said.

Tourism is one of the clearest examples of that potential, he said. According to Gaolathe , investors have for years been waiting to deploy capital into the sector, with investment-ready projects held back by challenges including land availability and permitting processes.

“When you look at the last five years, you will actually find that there have been investors waiting in the wings and have been going from pillar to post with resources, investment-ready projects, but they are not able to invest because land is not available or because of permits,” he said.

Gaolathe said the removal of some of these longstanding bottlenecks through the BETP had already helped unlock more than P1.2 billion in investment in the tourism sector.

Turning to dams, Gaolathe said Botswana’s investment in water infrastructure was also creating opportunities to develop tourism around these sites.

He noted that some tourism developments had previously been held back by disagreements between Government departments rather than a lack of investor interest.

According to Gaolathe , improved coordination across Government has helped resolve some of these bottlenecks and unlock millions of pula in potential investment.

On beneficiation, he said administrative solutions could help unlock opportunities in areas such as soda ash and manganese, while the digitalisation component of the BETP was part of a broader effort to modernise the economy.

Gaolathe also acknowledged that some infrastructure and state-owned enterprises cannot, by their nature, be expected to generate high commercial returns but remain necessary to support economic activity and improve Botswana’s competitiveness.

He cited Air Botswana and Botswana Railways as examples of entities that play an important role in facilitating economic activity, even where profitability may not be their primary purpose.

“We are at the tail end, with many of the feasibility studies having come to an end, where clearly we are almost executing some of those. There are multiple signs that are showing Botswana is beginning to diversify. The missing link has mainly been lack of capacity to implement,” Gaolathe said.

The Missing Numbers

However, a key question for assessing the progress of the BETP is how much investment has actually been committed or delivered to date compared with the programme’s overall targets.

The BETP is an ambitious and potentially important programme , but Jefferis believes its credibility would be strengthened by more detailed reporting on implementation and outcomes, particularly given that accountability is one of the Plan’s core pillars.

Why Now

A major challenge for Botswana is that the country no longer receives the level of diamond revenues it once did, limiting Government’s ability to use public spending to drive economic growth.

GDP data for the first quarter of 2026 indicate that the economy is beginning a slow recovery, although growth remains modest.

Annual GDP increased by just 0.2 percent in the first quarter, marking an improvement from the contractions recorded in 2024 and 2025.

Higher diamond production is expected to provide some support to growth, with Econsult projecting full-year GDP growth of between 2.5 percent and 4.5 percent. Statistics Botswana data show that diamond production increased by 4.7 percent year-on-year in the first quarter.

However, the increase in production has yet to translate into higher sales. Diamond exports fell by 29 percent in the first five months of 2026 compared with the same period in 2025, representing another significant decline.

Economist Keith Jefferis said the fall in sales was partly attributable to lower diamond prices, but added that some of the additional mining output had inevitably accumulated as unsold stockpiles.

“The decline in sales is partly due to lower prices, but inevitably some of the additional mining output was accumulated as unsold stockpiles,” Jefferis said.

The weakening diamond revenue base has reinforced the case for economic diversification, with Government facing less fiscal space to stimulate the economy through public spending.

“We can no longer pump money into the economy. We do not have the luxury to spend on the things that can help us grow as much as we would want to grow,” Gaolathe told Mogapi in a podcast, explaining the rationale behind Government’s renewed focus on diversification.

With the Minister acknowledging that Botswana no longer has the luxury of the diamond revenues it once enjoyed, the Ministry of Finance is turning to alternative financing models, including a Fund of Funds and an Angel Investors Network, to improve access to finance and better support local small and medium-sized enterprises (SMEs). Government has also been borrowing locally and internationally.

Will the Agencies Buy the Story?

As Botswana approaches S&P Global Ratings’ decision and a subsequent assessment by Moody’s, the key question is whether the Government’s fiscal consolidation measures, debt-management strategy and economic diversification efforts will be sufficient to convince the rating agencies that the country is on a sustainable path.

Moseki said Botswana had presented what he described as a strong case on both the measures already being implemented and those planned, but cautioned that Government would ultimately have to demonstrate tangible results.

“We hope so, but generally we think the country has put a strong case on what we are doing and what we intend to do. The next important thing is to make good our word, because we cannot continue to say we will, we will. There is a time we have to say we have and show,” Moseki said.

He added that the ultimate assessment would rest with the rating agencies, but said there was optimism that Botswana’s efforts would be recognised .

“It’s what they make of the assessment, but we are hopeful as a country,” Moseki said.

Other Factors

Other factors that Dr Masilila believes work in Botswana’s favour include the country’s credible institutional arrangements and frameworks underpinning monetary policy.

He said the Bank’s ability to forecast inflation, respond to liquidity conditions and maintain price and financial stability were important strengths in assessing the country’s economic resilience. “The exchange rate framework is also critical because the stability of FX reserves has to be demonstrated, and the adjustments made in the past year have helped to stabilise, in terms of levels induced and market trading of forex,” he said.