Botswana said last week that it will permit its Pula currency to weaken by 2.76% over the coming year, an accelerated pace compared to earlier plans, as the country faces economic strain from a sustained slump in the global diamond market.

The Southern African nation conducts biannual reviews of its exchange rate, making adjustments under a crawling band system that pegs the Pula to a currency basket, including the South African Rand.

Botswana, long regarded as one of Africa’s economic success stories, is facing mounting challenges as the global diamond market slump continues. The downturn led to a 3% contraction in GDP last year and threatens to push the economy into another decline this year, Reuters news agency reports.

“The recent decline in foreign exchange reserves, further worsened by the current macroeconomic environment, has the potential to compromise the stability of the exchange rate mechanism,” finance ministry official Sayed Timuno said during a press conference.

Timuno added that President Duma Boko had approved increasing the Pula's annual depreciation rate to 2.76%, up from the 1.51% rate established in December.

“This is meant to enhance competitiveness of domestic goods and services. This will also help moderate demand for foreign exchange and support preservation of foreign exchange reserves,” he said, going on to add that another review of the Pula's exchange rate would take place at the end of the year.

Botswana has traditionally maintained foreign reserves covering over 10 months of imports, but these reserves have been decreasing since 2018, reaching a record low of 5.2 months in February this year, according to a BMI research note published in June.

Despite the decline, BMI analysts noted that Botswana has not experienced the severe foreign exchange shortages seen in other African nations such as Nigeria and Angola in recent years.