Standard & Poor’s (S&P) cut its outlook for Botswana to negative on concern a slump in the diamond industry could be structural rather than cyclical.
The country is highly exposed to the performance of the diamond sector as it represents just under a third of Botswana's gross domestic product, about a third of its fiscal receipts and more than two thirds of exports, according to an S&P report.
“The weaker global external environment stemming from China's slowdown and declining pricing power of key diamond marketers is resulting in weaker performance of diamond demand and sales,” the report said.
Debswana, a 50:50 joint venture between De Beers and the Botswana government, cut production following declining diamond prices in the second half of 2015. This reduced the nation’s economic activity overall, with fiscal receipts falling “in tandem,” the ratings group said. Other factors such as water and power shortages and the impact of a drought on agricultural production also dented growth.
S&P’s decision to revise the outlook from stable comes as data released by the Bank of Botswana showed the nation’s rough diamond exports slumped 17 percent year on year to $817.6 million in the first quarter of 2016.
The downward trend was not steep enough to prompt S&P to budge on its ‘A-/A-2’ credit rating, but the company warned it could lower its score if diamond-sector production and prices remain depressed and the nation’s fiscal position deteriorates. A further fall in precious-stones exports could also lead to a cut in the rating, the company added.