Botswana eyes spending cuts as diamond slump hits economy
Botswana is intent on cutting spending to offset the effects of a prolonged downturn in the diamond market that’s led it to raise its budget deficit forecast to post-Covid peaks, its finance minister said.
“Something drastic” has to be done, Ndaba Gaolathe, who is also the southern African nation’s vice president, said in an interview in Washington. “The first thing we need to do obviously, is to live within our means. That means cutting spending. Cutting expenditure means doing away with what we believe is some of the fat.”
Botswana, the world’s largest diamond producer by value, relies on the precious stones for most of its exports and about a third of its fiscal revenue. A slump in demand for the gems extending back to the second half of 2023 has negatively impacted the economy.
It has drained savings, leading the government to revise its budget deficit forecast to 9% of gross domestic product for the year through March 2025 and caused GDP to contract 3% in 2024.
Authorities are considering cutting back the government’s vehicle fleet and travel by public officials to reduce spending. They’re also looking at increasing tax revenues by boosting compliance, plugging leaks and introducing new levies such as one on digital transactions that will start in September.
The country, one of the few African countries to have an investment-grade credit rating, is reluctant to tap international capital markets to address the revenue shortfall.
If debt is sought, it will probably be concessional lending, rather than the floating of international bonds, Gaolathe said. “Let’s borrow where it’s cheapest.”
While the country’s fiscal authorities anticipated a recovery in diamond demand by July, US tariffs have put that in doubt. The Bank of Botswana recently said it expects a ‘muted recovery’ this year.
“High tariffs on our diamonds will have deleterious effect on us because we obviously are very diamond dependent,” Gaolathe said.
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