While some investors had hoped the world's poorest continent Africa would prove largely unaffected by the worldwide downturn, it has quickly filtered through even to countries until recently seen as among the most promising frontier markets. S&P said it was cutting its outlook for diamond producer Botswana to negative from stable, maintaining its A/A-1 foreign currency and A+/A-1 local currency rating.

"The outlook revision reflects our view that economic policy challenges for Botswana are rising because of the severe contraction of the country's key commodity markets, which had spurred many years of strong economic growth, abundant fiscal revenues, and asset accumulation," said Standard & Poor's credit analyst Veronique Paillat-Chayrigues.

The announcement by S&P comes barely a week after the Central Statistics Office revealed that diamond exports, which contribute over 50 percent of national income, had plunged by 89 percent from P3.3 billion (about $414million) to P371 million (about $47million) between August and November 2008.

Botswana has long been held up as an example to other African countries for its low levels of corruption and prudent use of its resources wealth.

Roughly the size of France but are dominated by the Kalahari desert and with a population of less than 2 million, Botswana has been seen as an oasis of stability unaffected by political uncertainty, strife and conflict in nearby countries such as South Africa, Zimbabwe and Angola.

But S&P warned a slump in diamond revenues since late 2008 has significantly undermined growth prospects, fiscal outturns and external balances.

"The negative outlook indicates that Standard & Poor's could lower the ratings if the government's response to the ongoing cyclical shock and revenue crisis is not sufficient to contain spending and limit fiscal weakening, leading to the rapid dissipation of its asset buffers," said Paillat-Chayrigues.

She said the negative outlook could revert to stable if the government took steps to ensure the deterioration in public finances was only temporary and looked to be heading back towards a balanced budget by 2011.