The Ministry of Finance has cut its 2025 growth forecast to 0.4 percent from 0.5 percent, saying overall growth remains weak due to subdued demand for diamonds and the potential adverse effects of US tariffs.
According to the October 2025 World Economic Outlook (WEO), the domestic economy is expected to recover in 2026, with growth projected at 3.1 percent. The rebound is expected to be supported by a gradual recovery in diamond demand, expanded non-diamond mining production and beneficiation, increased domestic electricity generation, and the catalytic impact of Botswana Economic Transformation Programme (BETP)-driven reforms across several sectors.
The International Monetary Fund (IMF) says Botswana’s economic activity is projected to contract by 1 percent in 2025 before gradually recovering over the medium term, as demand for natural diamonds partially rebounds.
The Fund further projects that the current account deficit will widen to 6 percent of GDP due to lower exports and Southern African Customs Union (SACU) revenues, before narrowing gradually over the medium term.
After rising to 7.1 percent of GDP in FY24/25 on the back of lower mineral revenues, the fiscal deficit is expected to widen further to above 8 percent of GDP in FY25/26, amid continued weakness in mineral revenue flows and limited identified austerity measures, the IMF said in early December.
Unless additional fiscal consolidation and economic diversification reforms are adopted, and monetary policy is tightened, the Fund warned that public debt could rise sharply over the medium term. Persistent current account deficits and external outflows, it said, would further erode foreign reserves.
The IMF has urged Botswana to adopt an ambitious medium-term fiscal consolidation plan to rebuild buffers and strengthen fiscal sustainability, while protecting priority investment and social spending. It noted that a temporary, well-specified increase in the statutory debt ceiling, tied to a credible consolidation plan and supporting structural reforms, would be warranted to balance sustainability and growth objectives.
The Fund also emphasised the need to broaden the tax base and improve tax administration to strengthen non-mineral revenue mobilisation. It called for expenditure measures aimed at reducing the public wage bill, simplifying and better targeting social benefits, and improving the governance and management of state-owned enterprises (SOEs).
“Progress is also needed on public financial management reforms, including strengthening cash, public investment and debt management,” the IMF said. It further called for monetary policy tightening to better support the crawling peg, reduce capital outflows and bolster international reserves.
In October, Moody’s downgraded the Government of Botswana’s domestic- and foreign-currency long-term issuer ratings to Baa1 from A3, while maintaining a negative outlook.
The agency said the downgrade reflects the government’s challenges in adjusting to a structural downturn in the diamond industry, which accounts for roughly 30 percent of GDP and 90 percent of goods exports. The downturn has contributed to economic contraction, weakened external buffers and rising government debt.
“Since our outlook changed from stable to negative in April 2025, the global diamond downturn has continued and is unlikely to reverse,” Moody’s said.
“Although Botswana’s governance framework had previously been effective, it now struggles to adapt its economic and fiscal model.”
Moody’s said the negative outlook reflects the risk of sharper credit deterioration than currently anticipated, amid continued weakness in the diamond sector and the difficulty of replacing it as the main engine of economic activity and foreign exchange earnings.
“We anticipate that the government will gradually implement a broad and coordinated policy response, with debt peaking at around 40 percent of GDP over the medium term,” the agency said.
“However, downside risks persist, including external factors such as the potential normalisation of SACU revenues and further challenges in key diamond markets, as well as domestic constraints, including structural economic rigidities and difficulties in coordinating an effective institutional response.”
With financial assets in the Government Investment Account (GIA) almost entirely depleted, Moody’s said the government has become more vulnerable to rising interest rates and higher debt-servicing costs.
The agency lowered Botswana’s local currency (LC) and foreign currency (FC) country ceilings to A1 and A2 from Aa3 and A1, respectively.
“The three-notch gap between the LC ceiling and the sovereign rating reflects predictable institutions and government actions, low political risk, and external imbalances against the government’s significant footprint in the economy and reliance on a single revenue source,” Moody’s said.
“The one-notch gap between the FC ceiling and the LC ceiling reflects moderate policy effectiveness and low external indebtedness, pointing to limited transfer and convertibility risks.”
Moody’s said the downgrade is primarily driven by the government’s challenges in responding to the diamond industry downturn, both in the short and long term.
The downturn, which began in 2023, persisted throughout 2025, exposing the limited effectiveness of earlier policies aimed at promoting economic diversification.
“Botswana’s economy contracted by 3 percent in 2024 and is likely to decline by a further 6 percent in 2025, as it remains exposed to global demand shocks and technological disruption from lab-grown alternatives and changing consumer preferences—pressures we assess to be structural,” the agency said.
“Despite a 24 percent fall in mining output in 2024, inventories reached record highs. Growth prospects have been undermined by repeated delays in implementing NDP 12, due to weak inter-ministerial coordination and insufficient strategic planning, which have slowed the pace of reforms.”
Moody’s also noted that payment delays in the health sector have inflated costs and created funding gaps, a trend exacerbated by the withdrawal of USAID support, further straining service delivery.
“The economy remains heavily reliant on capital-intensive diamond mining, diversification efforts continue to lag due to reform delays, and exposure to climate shocks persists,” the agency said.
“Unemployment remains high—27.6 percent overall and 38.2 percent among youth—while public employment dominates formal jobs and spending, highlighting deep structural rigidities.”
While diamond exports continue to generate foreign exchange, Moody’s said the sector’s weakness has widened the current account deficit and pushed reserves to historic lows, despite measures allowing greater currency adjustment under the crawling peg regime.
“In the meantime, the government has nearly exhausted its financial buffers, including the GIA, by repeatedly drawing down reserves to finance fiscal deficits. This has weakened shock-absorption capacity and increased exposure to higher interest rates,” the agency said.
