Africa-Press – Botswana. Botswana is bracing for deeper spending cuts and a widening budget deficit as a prolonged slump in diamond demand squeezes the economy.
Speaking in Washington, USA, during a recent working visit, Vice President and Finance Minister, Ndaba Gaolathe revealed government is preparing to make ‘drastic’ fiscal adjustments to stay afloat. These include slashing expenditures and boosting tax revenues.
“The first thing we need to do, obviously, is to live within our means. That means cutting spending, doing away with what we believe is some of the fat,” said Gaolathe, when taking to the stage at the International Monetary Fund (IMF) and World Bank Spring Meetings in the American capital.
Diamonds make up a third of Botswana’s revenue and lead its exports. However, a prolonged drop in global demand since mid-2023 has forced government to raise its budget deficit [when a government’s spending exceeds its revenue] forecast to nine percent of Gross Domestic Product – the highest since the Covid-19 pandemic. The downturn has also led to a three percent contraction in the economy this year.
With foreign reserves under pressure, officials plan to cut costs by trimming the government vehicle fleet and curbing travel. They are also moving to boost revenue through stricter tax enforcement and a new digital transaction levy set to launch in September.
Despite fiscal stress, Gaolathe said Botswana is reluctant to seek finance on international markets, preferring concessional loans. “Let’s borrow where it’s cheapest,” he said.
The diamond downturn has also accelerated changes in the industry. For over a year, Anglo American, which owns 85 percent of De beers, has sought a buyer for the iconic diamond company. Botswana, which holds the remaining 15 percent and is De Beers’ primary diamond source, says it wants a greater say in the sale.
“We are very confident that partners are coming forward,” declared Gaolathe, noting interest from countries, funds and companies in the industry. Botswana wants the new owner to be financially strong and committed to the diamond business for the long-term and is open to increasing its stake to as much as 50 percent.
The country recently signed a 10-year deal with De beers to fund global marketing aimed at reviving demand for natural diamonds, which have been losing ground to lab-grown alternatives. New US tariffs on Botswana’s diamonds have since added uncertainty to any near-term rebound.
“High tariffs on our diamonds will have a deleterious [harmful] effect on us,” Gaolathe warned, adding the Bank of Botswana (BoB) expects only a ‘muted recovery’ this year.
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