Botswana, the world’s biggest diamond producer, cut its 2015 economic-growth forecast by almost half because of an expected decline in demand for the precious stones.
The southern African nation now forecasts expansion at 2.6 percent, the Finance Ministry said in a 2016-17 budget document released on Thursday. That compares with a projection of 4.9 percent announced by the government in February.
“The downside risk to the projections continues to be the country’s high dependence on diamonds, whose demand and prices are subject to global fluctuations,” the ministry said.
De Beers lowered its 2015 production target in July for a second time this year to between 29 million carats and 31 million carats from an initial projection of as much as 34 million carats, citing weakening demand for the gems. Diamond producers are under pressure to cut supply and lower prices as retail sales languish and traders struggle to make a profit.
Diamonds are “the vast majority of their revenue and also the government’s finances,” Hanns Spangenberg, an analyst at NKC African Economics in Paarl outside Cape Town, said by phone on Friday. “It’s definitely worrisome that they are still that dependent on the diamond industry, but it’s understandable that they cut the growth forecast.”
The Finance Ministry said on Thursday it will probably post a budget deficit of 4 billion pula ($394 million) in 2015-16 compared with a previous estimate of a 1.2 billion-pula surplus. Spending will be increased to 55.7 billion pula from an earlier target of 54.2 billion pula, after the government raised public-sector wages in April and approved extra expenditure to cope with a drought.
Diamonds mined by Debswana Diamond Co. Ltd., a government joint venture with Anglo American Plc’s De Beers unit, have helped transform Botswana from a poor, cattle-ranching society into the ranks of upper-middle income nations. The precious stones account for more than 70 percent of Botswana’s export revenue.
— With assistance by Mbongeni Mguni