FILE PHOTO: Diamonds are seen during an exhibition in Gaborone, Botswana, November 23, 2015. REUTERS/Siphiwe Sibeko/File Photo

GABORONE (Reuters) -Botswana has set up a new sovereign wealth fund to drive economic diversification, create jobs and manage state companies, officials said on Wednesday.

The Southern African country, long viewed as an African economic success story, is in a slump because of a prolonged downturn in the global market for diamonds, its key export.

It has had a sovereign wealth fund called the Pula Fund for more than three decades, which it has used to preserve part of its diamond income for future generations and stabilise government finances.

But the central bank-managed Pula Fund has been drained by recurring deficits, and officials say the new fund's role will be different.

Its initial board of directors is comprised of local and international experts.

"The Pula Fund is a liquidity stabilisation fund, it is a fund that takes cash and keeps it for a rainy day. This sovereign wealth fund will not be only about stabilisation, it's about growth," Farouk Gumel, the fund's board chairperson, told a press conference.

"We are not only going to be managing cash, but there is also management of assets, like some of the state-owned entities," Gumel said.

Emma Peloetletse, deputy board chair and a permanent secretary to the president, said the plan was to draw only from returns generated by the fund, not its capital investments.

She said the fund could invest abroad as well as in Botswana.

Botswana has dozens of state firms, but many of them are currently losing money, requiring government support.

The nation's economy contracted 3% last year, and the government forecast another contraction in 2025 because of the diamond downturn.

Diamonds account for about three-quarters of exports and one-third of Botswana's fiscal revenue.

(Reporting by Brian Benza;Editing by Alexander Winning and Bill Berkrot)