Botswana

Economy weakened by the diamond crisis

After a decade buoyed by diamond revenues, the economy entered recession in 2024, penalised by a crisis in the sector. The crisis can be attributed to a combination of factors: overstocking in the industry in anticipation of US sanctions on Russian diamonds, sluggish demand from the US and China, US customs duties (50%) on stones processed in India (equating to 90% of diamonds cut and polished worldwide) and the rise of synthetic diamonds as consumer preferences began to shift towards ethical and affordable alternatives. Lab-grown diamonds, which are sold at 60-80% less than natural diamonds, now account for 20% of the market in value and up to 50% in volume for engagement rings in the US. The global diamond market is dominated by the US, accounting for around 50% of global sales, followed by China with 20%. As a result, the price per carat fell from nearly USD 7,000 at the end of 2022 to less than USD 5,000 at the end of 2024. Diamond production has been cut by 40% since 2023, exacerbating unemployment (affecting nearly a third of the working population) and inequality (a Gini index of 53.3). The high unemployment rate can also be explained by the capital-intensive nature of mining and the small share of labour-intensive sectors, such as manufacturing (dominated by diamond cutting, polishing and certification), which accounted for 6% of GDP in 2025. Last, FDI inflows have fallen sharply, reflecting the loss of attractiveness caused by the diamond crisis. In response to this change, the government and De Beers signed an agreement in February 2025 extending mining licences until 2054 in exchange for an increase in the share of diamonds marketed by the state from 25% to 50%. In addition, in order to better control production and prices, and to direct more diamonds to local cutting and polishing factories (with value-added concentrated downstream), the state wants to increase its stake in De Beers from 15% to 50%. Anglo American is looking to sell its subsidiary and Angola is proposing to acquire 85% of it.

That said, growth is expected to pick up moderately in 2026 as punitive US tariffs are eased and global diamond consumption rebounds. Wholesale and retail trade (12% of GDP) is supported by the rise of e-commerce platforms. Tourism, driven by the ecotourism assets of the Okavango Delta, generates thousands of direct jobs in lodges and safaris, and indirect jobs in transport and crafts. The financial sector is undergoing a transformation with the implementation of a National Fintech Strategy (2025-2030) and the National Retail Payments Switch, which aims to interconnect banks, mobile money and fintechs to enhance financial inclusion. Construction (10%) could benefit from a revival of activity associated with major infrastructure projects. In October 2025, the government announced a EUR 24 billion recovery plan, financed by public-private partnerships to modernise transport, housing, water management and energy. In addition, since May 2025, the European Union has financed a digital transformation programme as part of its Global Gateway strategy. Last, agriculture (2% of GDP) continues to be important in rural areas but is hampered by drought and limited water availability.

In the first half of 2025, inflation remained below the central bank's target of 3-6% on back of weak domestic demand and falling energy prices. However, the financial situation deteriorated amid the recession. Bank liquidity tightened and borrowing costs rose, prompting the central bank to cut its reserve requirement ratio to zero in December 2024. To restore competitiveness and preserve foreign exchange reserves, which had fallen to USD 3.5 billion (down by about a quarter in one year), it announced a controlled devaluation of the pula by 2.76% in July 2025, while increasing its annual slide and fluctuation margins (it does not set its exchange rate rigidly, but adjusts it gradually in relation to the rand and the SDR). The decision had an inflationary effect in the second half of 2025 through higher prices for imported goods, particularly food and fuel. Inflation is expected to continue to rise in 2026.

Delicate balance between diamonds and regional customs revenue

The public balance has swung sharply into the red since 2023 on back of the recession and the fall in diamond revenues, which account for nearly a third of public revenues. The public deficit is expected to decline slightly in 2025-2026 due to spending controls, particularly after the additional costs associated with the 2024 elections, and better mobilisation of tax revenues. The trend is expected to continue in 2026-27 with an increase in mining production. However, dependence on diamond revenues and the volatility of transfers from the Southern African Customs Union (SACU) expose the budget to significant exogenous risks. To address these pressures, the government has embarked on reforms that include the introduction of higher corporate and marginal income tax rates, a broader tax base and VAT on digital services. Legislation is being drafted to modernise the tax framework, including a tax administration bill and an electronic invoicing system planned for March 2026. Deficit financing relies mainly on the domestic market via the issuance of Treasury bills and bonds.

Faced with the gradual depletion of its sovereign wealth fund reserves, the government has had to resort more to borrowing to finance its deficit. Historically low, public debt has risen significantly over the past two years, driven by the deficit and the contraction in diamond revenues. Nevertheless, it remains below the legal 40% threshold and its interest payments are still low due to the dominance of national pension funds and multilateral banks among creditors. Its domestic share (25.7% of GDP in June 2025) exceeds the statutory limit of 20%, which is forcing the government to diversify its sources of external financing. In 2025, Botswana obtained two major loans: USD 304 million from the African Development Bank (AfDB) and USD 200 million from the OPEC Fund. However, this increased reliance on multilateral financing failed to reassure the markets: in September 2025, Standard & Poor's downgraded the sovereign rating from BBB+ to BBB with a negative outlook. Moody's followed suit in October by downgrading the rating from A3 to Baa1, citing as grounds for its action the increasing risks to debt sustainability and external vulnerability.

The current account balance has deteriorated sharply from the end of 2023 due to the fall in diamond exports. At the same time, imports have remained robust. As a result, the trade balance slipped sharply into the red. It is expected to improve slightly in 2025 and more significantly in 2026 if the upturn in diamond sales observed at the end of 2025 is confirmed. The services balance traditionally posts a slight deficit. Although tourism revenues are growing, they are not offsetting outflows related to transport services ? as a landlocked country, it is heavily dependent on South African ports ? insurance and imported professional services. Primary income remains in deficit due to repatriation of dividends, interest and remuneration by foreign investors, particularly in the mining, banking and telecommunications sectors. Secondary income, driven by transfers from the Southern African Customs Union (SACU), remains in surplus but is volatile. These transfers depend on customs revenues collected at regional level. In practical terms, all customs duties and import taxes collected by SACU member countries – mainly at the point of entry into South Africa – are pooled in a common fund and then redistributed according to a formula that takes into account market size, intra-regional imports and development criteria. Overall, the current account deficit is expected to narrow slightly in 2025 and more significantly in 2026 due to the recovery in mining exports and lower prices for imported energy and food.

Robust democracy focused on regional cooperation

The country is one of Africa's few democracies, with strong institutions and peaceful elections. The general elections of 30 October 2024 marked a historic turning point: after 58 years of uninterrupted rule, the Botswana Democratic Party (BDP) lost its majority to the Umbrella for Democratic Change (UDC) coalition, which won 36 out of 61 seats. This victory, led by President Duma Boko, reflects discontent with high unemployment, economic stagnation and continued dependence on diamonds. The transition took place smoothly, confirming the strength of the institutions.

Botswana focuses its diplomacy on regional cooperation. Its relations with South Africa are strategic, driven by their deep trade links and cross-border projects in transport and energy, including the development of rail corridors (also with Zambia and Namibia, with which the country shares water and copper resources) and the Lesotho-Botswana pipeline project through South Africa, aimed at securing water supplies. The country is a member of the Southern African Development Community (SADC) and the Southern African Customs Union (SACU), which applies a common external tariff. This membership limits the country's commercial flexibility as it cannot unilaterally adjust its customs duties in response to US customs duties which were reduced in August 2025 from 37% to 15% for diamonds cut and polished in Botswana. However, Botswana is advocating for a free trade agreement that would allow its diamonds to be treated on an equal footing with those from Europe (0%). Regional cooperation therefore remains essential to defend its commercial interests and strengthen economic integration. In addition, the country maintains strong relations with other traditional partners, such as the European Union.

Last updated: October 2025