As diamond revenues collapse, SACU is holding up Botswana’s budget, reserves and liquidity, but Moody’s warns the crutch could become a risk.
As mineral revenues weaken, SACU receipts are carrying more weight across government’s budget, foreign reserves and liquidity. But Moody’s warns that growing reliance on the regional revenue pool leaves Botswana’s public finances exposed to forces largely outside government’s control. Staff Writer GILBERT MANENYE reports.
The Southern African Customs Union is becoming an increasingly important cushion for Botswana’s public finances as mineral revenues weaken, but Moody’s Ratings has warned that the same dependence is exposing the country to risks it cannot control.
The warning came as Moody’s downgraded Botswana’s long-term government credit ratings in both pula and foreign currency to Baa2 from Baa1, citing persistent budget deficits, weaker financial buffers and rising debt.
The ratings agency repeatedly highlighted SACU in its assessment, warning that reliance on the regional revenue pool exposes Botswana’s fiscal position to “external developments that are largely outside the government’s control.”
A sustained decline in SACU receipts, Moody’s said, could widen budget deficits, increase government borrowing requirements and place further pressure on the domestic debt market.
The warning comes as Botswana’s revenue mix has shifted sharply away from minerals.
According to Bank of Botswana’s July economic and financial data, mineral revenue stood at about P33.8 billion against customs receipts of roughly P13.8 billion in 2022/23.
By 2025/26, the positions had effectively reversed: customs receipts had risen to almost P25 billion, while mineral revenues had fallen to about P13.4 billion.
That shift has made SACU far more important to government finances, even though receipts themselves are not unusually high by historical standards.
Economist Dr. Keith Jefferis told The Business Weekly & Review that SACU revenues have ranged between 7 percent and 13 percent of GDP over the past two decades and were estimated at 9.2 percent of GDP in 2025/26.
“SACU revenues are now more important given the decline in mineral revenues,” Jefferis said.
He cautioned, however, that SACU revenues can be volatile, influenced by regional trade, the size of the common revenue pool, which he said is largely driven by South African imports, and “various adjustments under the SACU revenue distribution formula.”
FNBB economist Gomolemo Basele similarly said the diamond downturn had increased SACU’s structural importance as a source of government revenue and foreign exchange.
“Weaker mineral revenues have increased SACU’s structural importance,” Basele said.
The warning from Moody’s follows a similar assessment of Botswana’s finances by S&P Global Ratings earlier this month.
S&P, which affirmed Botswana at BBB-/A-3 with a negative outlook, said the country’s fiscal revenues now “depend on two main sources”, diamonds and SACU, and estimated that SACU receipts would account for 34.7 percent of the 2026 full-year budget.
But SACU’s importance now extends beyond the budget.
S&P said Botswana’s foreign exchange reserves had improved after several years of depletion, rising by almost $1.5 billion from their June 2025 lows by July this year.
SACU receipts were among the factors behind the recovery, alongside stronger diamond revenues, investment gains and government foreign borrowing.
The regional receipts have also helped ease liquidity pressures in the domestic financial system.
Three-month Treasury bill yields fell from a multiyear high of 10.60 percent in April to 7.99 percent in August, with S&P linking the decline partly to improved liquidity from SACU inflows, stronger diamond revenue and government budget-support loans.
Botswana’s external accounts have benefited as well.
The current account, broadly measuring whether a country earns more from the rest of the world than it pays out, moved from a deficit equivalent to 4.5 percent of GDP in 2024 to a surplus of 2.8 percent last year.
S&P attributed the improvement partly to stronger SACU and diamond receipts and lower electricity imports.
The timing of SACU payments is also visible in government’s monthly finances.
An analysis by The Business Weekly & Review, of Bank of Botswana data shows that in 2025/26, April, July, October and January, the four months in which large customs receipts were recorded, all ended in budget surpluses, while each of the remaining eight months recorded a deficit.
The same pattern occurred in the previous financial year.
But both Jefferis and Basele caution against interpreting the monthly pattern as evidence that government cannot finance itself between SACU payments.
Jefferis explained that SACU revenues arrive quarterly in South African rand, boosting foreign reserves and government liquidity when they are received before those balances are gradually drawn down over the following months.
Basele said the monthly swings largely reflect the payment cycle rather than a deeper inability to finance government expenditure.
Government spending continues throughout the year, he said, while SACU revenue arrives in large quarterly instalments and is then gradually spent.
The bigger risk, therefore, is not the normal rise and fall in liquidity between SACU payments but a sustained decline in the amount Botswana receives.
Basele said such a fall would increase government borrowing requirements and tighten domestic liquidity, potentially putting upward pressure on borrowing costs.
If SACU revenues remain broadly stable through 2027, however, he expects them to continue providing some predictability to government finances.
Jefferis said the consequences of a material decline would spread much further.
Asked whether the pressure would show up in the budget deficit, foreign reserves, domestic liquidity, borrowing costs or the current account, he said all would be affected at a time when Botswana already has limited fiscal room because of structurally weaker mineral revenues and large budget deficits.
