Moody's cuts Botswana rating again as diamond slump weighs on economy

KUALA LUMPUR: Ratings agency Moody's on Friday downgraded Botswana's domestic- and foreign-currency long-term issuer ratings to "Baa2" from "Baa1", citing an expected deterioration in the country's public finances.

The move marks Botswana's second downgrade by Moody's in less than a year, leaving the sovereign just two notches above junk status.

It also comes days after Finance Minister Ndaba Gaolathe said Botswana expects a much smaller budget deficit in the current fiscal year, helped by higher-than-expected revenue from the central bank and measures to rein in spending.

Botswana's economy, long viewed as an African success story, has been hit hard by a prolonged downturn in the global diamond market, driven by economic uncertainty and the growing popularity of lab-grown diamonds. Diamonds typically account for about one-third of Botswana's national revenue and three-quarters of its foreign exchange earnings.

Moody's said weaker diamond-sector revenue, lower-than-expected receipts from the Southern African Customs Union (SACU), a key source of government income, and disappointing proceeds from newly introduced tax measures had weakened Botswana's fiscal position.

The rating agency also warned that it could cut again if Botswana were to materially increase its investment in De Beers through debt-financed transactions, a sale Anglo American is aiming to close in the final quarter of this year.

The outlook was changed to stable from negative, citing a stronger fiscal policy response and that a more sustained recovery in diamond revenue could slow the pace of debt accumulation.