Moody's cuts Botswana rating again as diamond slump weighs on economy

Sept 25 (Reuters) - Ratings agency Moody's on Friday downgraded Botswana's domestic- and foreign-currency long-term issuer ratings to "Baa2" from "Baa1", citing an expected deterioration in the country's public finances.

The move marks Botswana's second downgrade by Moody's in less than a year, leaving the sovereign just two notches above junk status.

It also comes days after Finance Minister Ndaba Gaolathe said Botswana expects a much smaller budget deficit in the current fiscal year, ⁠helped by higher-than-expected revenue from the central bank and measures to rein in spending.

Botswana's economy, long viewed as an African success story, has been hit hard by a prolonged downturn in the global diamond market, driven by economic uncertainty and the growing popularity of lab-grown diamonds. Diamonds typically account for about one-third of Botswana's national revenue and three-quarters of its foreign exchange earnings.

Moody's said ⁠weaker diamond-sector revenue, lower-than-expected receipts from the Southern African Customs Union (SACU), a key source of government income, and disappointing proceeds from newly introduced tax measures had weakened Botswana's fiscal position.

The rating agency also warned ⁠that it could cut again if Botswana were to materially increase its investment in De Beers through debt-financed transactions, a sale Anglo American (AAL.L), opens new tab ⁠is aiming to close in the final quarter of this year.

The outlook was changed to stable from negative, citing a ⁠stronger fiscal policy response and that a more sustained recovery in diamond revenue could slow the pace of debt accumulation.

Reporting by Sruthi Narasimha Chari in Bengaluru; Editing by Maju Samuel

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