Moody’s Ratings (Moody’s) says it has downgraded Botswana’s domestic- and foreign-currency long-term issuer ratings to Baa2 from Baa1 while the outlook was changed to stable from negative.
The ratings body said the downgrade to Baa2 reflects the expected deterioration in the country’s public finances.
According to Moody’s, the downgrade to Baa2 also shows a weakening of Botswana’s fiscal resilience with financial buffers largely exhausted and large fiscal deficits expected to persist.
The agency also observed that the decline in diamond-related revenue is likely to contribute to a continued increase in debt despite the ongoing policy response.
It bemoaned that reliance on Southern African Customs Union (SACU) transfers further exposes fiscal outcomes to external developments that are largely outside the government’s control.
“As a result, Botswana has less capacity to absorb shocks than similarly rated sovereigns, increasing the risk of further erosion in fiscal strength absent more effective fiscal adjustment.”
Although it noted the recently adopted revenue and expenditure measures will slow the fiscal deterioration, Moody’s warned that fiscal deficits will remain large, narrowing only gradually to 5.8% of GDP in fiscal 2027 from 6.3%-6.4% in fiscal 2025-26.
Meanwhile, the agency said the stable outlook reflects its assessment that risks to Botswana’s credit profile are balanced at the Baa2 rating level.
“The principal downside risks are that diamond or SACU revenue underperforms, and enacted revenue and expenditure measures deliver smaller or less durable gains than we assume. Wider deficits would accelerate debt accumulation, and larger funding needs would strain the domestic debt market. Higher borrowing costs, weaker investor demand at government debt auctions or reduced access to developmentbank financing would compound the effect on debt affordability and government liquidity.
“These risks are mitigated by the developed domestic investor base and access to external concessional financing, and by foreign-exchange reserves of around six months of imports, which reduce the risk that fiscal slippage would quickly develop into liquidity or external payment stress.
“Conversely, fiscal outcomes could surprise positively if the government responds more forcefully to revenue pressure, building on the measures adopted this year, if the revenue measures and tighter expenditure controls deliver larger and more durable gains, or if diamond prices and sales recover more strongly than we assume. Progress in diversifying the economy away from the diamond sector would also support stronger growth and government revenue,” the ratings body added.
According to Moody’s, government continues to run large, even though gradually narrowing, fiscal deficits, driving a steady increase in debt as financial assets have been depleted since 2024.
“Recently adopted revenue and expenditure measures, while significant, will slow but not reverse this trend. Assuming effective implementation, we still expect government debt to rise to 41% of GDP in the fiscal year ending 31 March 2028 (fiscal 2027) from 31% in fiscal 2025 and to continue increasing thereafter absent more effective fiscal consolidation. That being said, a still-moderate debt burden relative to peers, affordable domestic financing conditions, a strong external position and robust institutions support the Baa2 rating,” the agency stated.
It added that the stable outlook reflects balanced risks at the Baa2 rating level, saying the potential for a stronger fiscal policy response and a more sustained recovery in diamond or other mining production could slow the pace debt accumulation.