Leading global credit ratings agency Moody's, predicts that Botswana's economy will grow by 5% and shrug off the anticipated negative effects of running multi-billion pula deficits and increased debt.

In its credit research of the country, Moody's said Botswana was now recovering from mass state losses through mining input and rising diamond prices.

"Botswana was severely affected following the collapse of the demand for luxury goods in late 2008 and early 2009, given the importance of diamonds in its export mix," said Aurelien Mali, an Analyst in Moody's Sovereign Risk Group.

"The strength and pace at which the global recovery takes place will be crucial in determining Botswana's future economic performance," the investment firm said in a statement, quoted by Mmegi online.

The outlook on Botswana's A2 government bond ratings is negative, reflecting the strains on the government's finances, inflicted by the crisis and the increased challenges for fiscal policy and long-term growth potential, associated with the leveling off of diamond output.

Based on data from the first quarter of 2010, Moody's believes that most of the initial impact on growth will be transitory, with economic expansion this year of 5%, which would erase last year's loss.

Given the clear vulnerability of the economy and public finances to the diamond market, concluded the investment firm, the Botswana's longstanding goal of economic diversification is even more pressing.

The issuance of this credit analysis by Moody's Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer.