GABORONE, Sept 26 – Moody’s Ratings downgraded Botswana’s long-term issuer ratings in both domestic and foreign currencies to Baa2 from Baa1, citing expectations of further deterioration in the country’s public finances.
The move represents Botswana’s second downgrade by Moody’s in less than a year, leaving the country two rating levels above speculative or junk status.
The downgrade comes shortly after Finance Minister Ndaba Gaolathe said the government expects a significantly smaller budget deficit in the current financial year, supported by higher-than-anticipated revenue from the central bank and measures aimed at controlling expenditure.
Moody’s, however, said Botswana’s fiscal position had weakened as a result of lower revenues from the diamond industry, weaker-than-expected receipts from the Southern African Customs Union (SACU) and disappointing revenue from recently introduced tax measures.
Diamond Downturn Weighs on Fiscal Position
Botswana’s economy remains heavily exposed to the global diamond market. Diamonds typically account for around one-third of government revenue and three-quarters of the country’s foreign-exchange earnings.
The prolonged downturn in global diamond demand has therefore placed significant pressure on government finances. Economic uncertainty and growing consumer demand for lab-grown diamonds have contributed to weaker conditions in the natural diamond market.
Moody’s said the decline in diamond-sector revenue had compounded other fiscal pressures and contributed to a weaker outlook for government finances.
The agency also highlighted the potential implications of Botswana’s planned involvement in De Beers, which Anglo American is seeking to sell in the fourth quarter of this year.
Moody’s warned that Botswana’s rating could face another downgrade if the government materially increases its investment in De Beers through debt-financed transactions.
Outlook Revised to Stable
Despite the downgrade, Moody’s changed Botswana’s outlook to stable from negative.
The agency cited a stronger fiscal policy response and the possibility that a sustained recovery in diamond revenues could slow the pace at which public debt accumulates.
The assessment comes as Botswana seeks to balance near-term fiscal consolidation with efforts to manage the economic effects of the diamond downturn.
The government’s ability to contain expenditure, strengthen non-diamond revenues and manage potential financing requirements associated with De Beers will remain important factors for its sovereign credit profile.
