Moody’s cut Botswana’s credit rating on Friday for the second time in less than a year, warning that a prolonged diamond market downturn is weakening government finances.
The agency lowered the country’s long-term domestic- and foreign-currency issuer ratings to Baa2 from Baa1, leaving Botswana two notches above junk status.
Falling diamond revenues have put pressure on an economy long regarded as one of Africa’s success stories. The industry typically provides about a third of government revenue and three-quarters of foreign exchange earnings.
Global economic uncertainty and growing demand for lab-grown diamonds have contributed to the prolonged market slump.
Moody’s said Botswana’s fiscal position had also suffered from weaker-than-expected income from the Southern African Customs Union and disappointing returns from newly introduced tax measures.
The downgrade comes days after Finance Minister Ndaba Gaolathe said the government expected a substantially smaller budget deficit in the current fiscal year, citing higher-than-anticipated central bank revenue and spending restraint.
The agency also warned that a substantial, debt-funded increase in Botswana’s investment in diamond producer De Beers could trigger another downgrade. Anglo American is aiming to complete the sale of De Beers in the final quarter of the year.
Despite lowering the rating, Moody’s revised Botswana’s outlook to stable from negative, pointing to a stronger fiscal policy response. A sustained recovery in diamond revenues could also help slow the country’s accumulation of debt, it said.
