Botswana's economy is projected to contract by 1.7% this year, marking its first economic downturn since the COVID-19 pandemic.

This contraction is largely attributed to a prolonged slump in the global diamond market, according to finance minister Ndaba Gaolathe.

When presenting the national budget in February, the government had anticipated a robust economic growth rate of 4.2% for 2024. However, the persistent weakness in the diamond sector, which began in late 2023, has significantly impacted demand for Botswana's leading export commodity. 

Diamonds play a critical role in the country's economy, driving revenues and employment, and the slowdown in this key industry has derailed earlier growth expectations.

Debswana, the joint venture between Botswana and De Beers, has reduced its diamond production forecast for 2024 by approximately 6 million carats, setting the target at 17.9 million carats. Meanwhile, De Beers' diamond sales have plunged 40% during the first nine months of 2024 compared to the same period last year.

Speaking to lawmakers on Thursday, Gaolathe cautioned that the anticipated 1.7% contraction in Botswana's Gross Domestic Product this year could worsen if additional risks emerge. His comments were shared with reporters through a statement from the finance ministry, CNBC Africa reports.

The risks threatening Botswana's economic outlook include further disruptions in the diamond market, the effects of a severe regional drought, and operational issues at a major power plant, compounding the nation's economic difficulties, according to Gaolathe.

As a result, the projected budget deficit has widened significantly, now expected to reach 6.75% of GDP, more than double the 2.8% deficit forecast in February, the finance minister added.

Botswana, like many other southern African nations, is grappling with the worst regional drought in decades. This prolonged drought has not only strained Botswana's economy but has also severely impacted economic growth in neighbouring countries such as Namibia and Zimbabwe.

Furthermore, on Thursday, Botswana's central bank acknowledged that the nation’s economy is expected to contract in 2024. However, the bank did not provide specific figures on the anticipated scale of the downturn.