Botswana's government now forecasts an economic contraction of almost 1% this year as its key diamond sector continues to struggle, its finance minister said in a budget review on Friday.

When the main budget was presented in February the Southern African country's government had hoped for a 3.3% gross domestic product (GDP) expansion this year, rebounding from last year's 3% contraction.

But by mid-year it was projecting almost no growth as a prolonged downturn in the global diamond market showed no sign of abating.

Diamonds normally contribute around one-third of Botswana's national revenues and three-quarters of its foreign exchange receipts.

"The macroeconomic outlook for the whole of 2025 remains fragile, with GDP projected to contract by 0.9%. This forecast reflects continued weakness in the diamond sector," Finance Minister Ndaba Gaolathe said.

"Debt risks are mounting as persistent fiscal imbalances have necessitated increased borrowing, leading to a structurally higher debt trajectory," he added.

Gaolathe said the government had responded with austerity measures to try to rein in expenditure, including by restricting an overtime allowance for civil servants and placing a moratorium on domestic and foreign travel.

He said more austerity measures would be announced in next year's budget speech to redirect funds to areas that could generate future growth.