IMF Botswana Report Highlights Diamond Sector Challenges and Urgent Need for Economic Diversification
The International Monetary Fund (IMF) has concluded its annual Article IV consultation for Botswana, revealing that the country’s diamond sector is significantly slowing economic growth.
After expanding by 3.2% in 2023, Botswana’s economy contracted by 3% in 2024, largely due to challenges in the diamond industry, including competition from lab-grown diamonds and reduced demand from China.
The IMF forecasts Botswana’s GDP will shrink by another 1% in 2025, driven by further declines in diamond production, before a potential recovery in 2026.
Diamonds remain central to Botswana’s economy, contributing about 30% of GDP and accounting for approximately 85% of exports. However, the sector is facing increasing pressures that threaten economic stability.
IMF Botswana mission chief Édouard Martin reported that mining output fell by 24% in 2024, while non-mineral sectors also slowed. “Reflecting lower exports, the current account balance shifted from a surplus of 1.5% of GDP in 2023 to a deficit of 4.2% in 2024,” Martin noted. International reserves declined to cover roughly five months of imports.
Inflation in Botswana has remained below the Bank of Botswana’s target range of 3% to 6% over the past year. It is expected to return to this range in the coming months as the recent depreciation of the pula influences consumer prices.
The central bank has kept its policy rate unchanged at 1.9% since August 2024. On July 11, authorities adjusted the pula’s rate of depreciation and widened the currency’s trading margin to preserve competitiveness, diversify the economy, and protect foreign exchange reserves.
Since then, the pula has depreciated by 6% against the US dollar and 8.6% against the South African rand.
Fiscal challenges persist. Preliminary estimates show the fiscal deficit rose to 7.1% of GDP in the 2024/25 financial year, driven by lower mineral revenues and higher current spending, partially offset by reduced capital expenditure. Public debt now exceeds 30% of GDP.
Looking ahead, Botswana’s economy is expected to shrink by about 1% in 2025 due to high diamond stockpiles and slower activity in other sectors amid reduced government spending.
Over the medium term, the IMF projects that growth could recover to over 4% if Botswana undertakes ambitious reforms to ensure fiscal sustainability and diversify its economy.
The IMF recommends greater private sector participation, a broader export base, and a more efficient public sector.
Martin emphasized the importance of reforms to enhance domestic revenue collection, streamline the wage bill, better target social assistance, strengthen state-owned enterprise management, and create a more business-friendly environment.
“The government’s initiatives under the Botswana Economic Transformation Programme are encouraging,” Martin said.
He urged Botswana to integrate these reforms into its new five-year National Development Plan to boost resilience, growth, and job creation.
