Citigroup Inc. has warned that Botswana could be forced to devalue its currency again as the country struggles with declining diamond revenues, which are central to its economy.
Earlier this month, the Bank of Botswana adjusted its exchange rate policy, allowing the pula to weaken by up to 2.76% against a basket of currencies in 2024, almost double the previous target of 1.51%, in an effort to boost exports.
So far this year, the pula has already depreciated by 3.35% against the US dollar, making it the fifth worst-performing currency in Africa, according to Bloomberg.
The slump in Botswana’s revenue comes amid a global decline in diamond prices, largely due to the growing popularity of lab-grown alternatives.
During the first half of 2024, rough diamond sales dropped by 49.2%, based on data from Botswana’s central bank.
Don’t Miss This:
Africa’s Top Diamond Producer Botswana Cuts 2025 Diamond Output Amid Global Market Slowdown
As the world’s second-largest diamond producer after Russia, Botswana relies on diamonds for nearly one-third of its government revenue.
In response to the sharp downturn, the government has introduced austerity measures, including cuts to official travel and vehicle purchases, and may postpone some capital projects.
With the demand for natural diamonds still uncertain, Botswana is now relying more on its exchange rate as a policy tool.
Authorities believe that a weaker pula could help boost diamond earnings, improve competitiveness for non-diamond exports, and increase receipts from the Southern African Customs Union (SACU), according to David Cowan, Chief Africa Economist at Citigroup.
“Moreover, at this point in time another devaluation of Botswana pula cannot be discounted later this year,” Cowan said in a report. “While interest rates may also have to increase significantly.”
Botswana’s benchmark interest rate has remained unchanged at 1.9% since August 2023.
At the same time, concerns are also mounting over the steady decline in Botswana’s foreign-exchange reserves.
The country has traditionally upheld a strong track record of fiscal discipline, often maintaining reserves sufficient to cover over 10 months of imports.
However, since 2018, those reserves have gradually diminished, reaching a record low of just 5.2 months’ worth by February 2024.
This trend, noted in a June research report from BMI, signals growing pressure on the country’s financial buffers.
Don’t Miss This:
Africa’s 10 Strongest Currencies in June 2025
Image Credit: CediRates
