S&P Global Ratings, an international credit rating agency, lowered Botswana’s long-term sovereign credit rating by one notch to BBB, the second-lowest investment grade, citing persistent weakness in global diamond demand, Bloomberg reports.

The agency also assigned a negative outlook to the southern African nation, which remains the highest-rated country in Africa, ahead of Mauritius.

“Global demand and prices for natural diamonds will likely remain weak and weigh on Botswana’s minerals-dependent economy,” S&P said in a statement on Friday. The rating agency noted that these trends are “eroding its previously strong foreign exchange and fiscal buffers.”

Diamonds account for roughly 80% of Botswana’s export earnings and about a third of government revenue. Revenue has been pressured by competition from lower-cost, lab-grown diamonds that are increasingly popular in the US, the world’s largest diamond market.

S&P forecasts that Botswana’s economy will shrink for a second consecutive year in 2025, with a fiscal deficit projected at 7.6%. The agency also expects government debt to rise sharply, reaching 34% of gross domestic product by 2028, up from 6.3% in 2023.