GABORONE, Dec 6 (Reuters) – Botswana’s economy could shrink 1.7% this year, the first contraction since the COVID-19 pandemic, mostly because of a prolonged downturn in the global diamond market, finance minister Ndaba Gaolathe said.

In February, when it presented its budget, the southern African country’s government forecast 4.2% growth in 2024 but weakness in the diamond market since late last year has hurt demand for Botswana’s key export.

Debswana, Botswana’s joint venture with De Beers, lowered its 2024 diamond production guidance by about 6 million carats to 17.9 million carats. De Beers diamond sales were down 40% in the first nine months of 2024 from the year earlier period.

Gaolathe told lawmakers on Thursday that the contraction in Gross Domestic Product (GDP) this year could be greater than 1.7% should additional risks materialise, according to a copy of his remarks sent to reporters by the finance ministry.

Those risks include further disruptions in the diamond market, the impact of a severe regional drought and defects at a major power plant.

The budget deficit is now seen at 6.75% of GDP, compared to the estimate of 2.8% given in February, Gaolathe said.

Like other southern African countries Botswana has been affected by the worst regional drought in decades, which has sapped economic growth in neighbouring Namibia and Zimbabwe.

Botswana’s central bank said on Thursday that the economy would contract in 2024 but did not say by how much.

(Reporting by Brian Benza; Writing by Tannur Anders; Editing by Alexander Winning, Kirsten Donovan)