Botswana records four consecutive quarters of economic downturn

Botswana, a country heavily reliant on its diamond industry, is currently facing economic challenges as Moody's and S&P Global Ratings downgraded the country's economic outlook from stable to negative. The prolonged downturn in the diamond industry has raised concerns about the country's financial health, with shrinking government reserves and rising debt levels. Onalethata Letlole, Sales Manager for FX & Money Markets at Stanbic Bank Botswana, joined CNBC Africa to shed light on the underlying dynamics within Botswana's economy. Letlole highlighted the impact of the global challenges facing the diamond market, including slowed demand and increased competition from lab-grown diamonds. Botswana's government, known for its strong governance and low political risk, is taking steps to stabilize the economic situation. These steps include fiscal consolidation, reducing development projects, and exploring ways to broaden revenue sources beyond diamonds. The recent peaceful transition of power after the 2024 elections has reassured investors and demonstrated the country's stability. Despite the downgrade in the economic outlook, Botswana's government is focused on diversifying the economy to reduce reliance on the diamond industry. Initiatives such as growing investments in copper mining, manufacturing, tourism, and the digital economy aim to create new economic pillars and increase revenue streams. The reaction in the currency and bond markets following the downgrades has been mixed. While yields in the bond market have slightly increased, challenges with local liquidity have affected demand for new debt programs. Asset managers facing liquidity constraints are exploring investment options in bonds and money market deposits. Looking ahead, the Monetary Policy Committee in Botswana has maintained the policy rate at 1.9%, despite calls for an increase to reflect economic trends. While consumers prefer lower rates to boost spending, there is a need to consider the cost of raising deposits for banks and the impact on lending rates. As the country heads into the second half of the year, the key focus for Botswana's economy is diversification. While some industries have shown resilience, the diamond industry's continued pressure poses challenges to government revenues and economic growth. The government's efforts to stabilise the economy include spending cuts and initiatives to create new economic pillars in tourism, agriculture, and mining. In conclusion, Botswana faces a challenging economic landscape with the diamond industry downturn impacting the country's financial health. However, the government's focus on diversification and stability measures aims to navigate through these challenges and create a more resilient economy for the future.