Located in Southern Africa, Malawi is landlocked, sharing its borders with Mozambique, Zambia, and Tanzania. The country's estimated population of 19.65 million (2021), is expected to double by 2038.
Malawi remains one of the poorest countries in the world despite making significant economic and structural reforms to sustain economic growth. The economy is heavily dependent on agriculture, which employs over 80% of the population, and it is vulnerable to external shocks, particularly climatic shocks.
In January 2021, the government launched the Malawi 2063 Vision that aims to transform Malawi into a wealthy, self-reliant, industrialized upper-middle-income country, through a focus on agriculture commercialization, industrialization, and urbanization. The first 10-year implementation plan anchors the World Bank’s Country Partnership Framework (CPF) (FY21- FY25).
Political Context
Malawi has enjoyed sustained peace and stable governments since independence in 1964. One-party rule ended in 1993. Since then, multi-party presidential and parliamentary elections have been held every five years.
Malawi’s sixth tripartite elections were conducted in May 2019. The presidential results were nullified in February 2020 by the Constitutional Court. Fresh presidential elections were held on June 23, 2020, in which Lazarus Chakwera of the Malawi Congress Party and Saulos Chilima of the UTM Party were elected as president and vice president respectively after getting 58.6% of the votes. They won against Peter Mutharika of the Democratic Progressive Party and United Democratic Front coalition that received 39.4% of the votes. President Lazarus Chakwera and Vice President Saulos Chilima lead a coalition of nine political parties known as the Tonse Alliance.
Economic Overview
Malawi’s economy has been significantly weakened by a series of exogenous shocks and persistent macro-fiscal imbalances. Growth is projected to decline to 0.9% in 2022, from 2.8% in 2021, with lower agricultural output, erratic electricity supply, forex shortages affecting importation of raw materials and high global commodity prices. Economic growth is projected to slightly increase in 2023 but remain subdued. The economic recovery is projected to be gradual and significant risks remain.
Headline inflation picked up to 26.7% year-on-year in February 2023, after slightly easing in November and December 2022 from its peak at 26.7% in October 2022. Food inflation remains high, largely due to an increase in maize prices as well as elevated global food prices for grains and cooking oil. Non-food inflation increased to 20.5%, with particularly large increases in the costs of transport and utilities driven by international price increases and the adjustment of the exchange rate. The Reserve Bank of Malawi devalued the Malawi kwacha, MWK, against the US dollar by 25% in May 2022. However, the spread between the official rate and less strictly controlled rates on cash purchases at foreign exchange bureaus at times has exceeded 50% as of end of February 2023, surpassing the pre-devaluation level. Official reserves continue to be very low, declining further from their gross position of 0.5 months of import cover at the end of 2022. An acute lack of foreign currency is impeding businesses and is increasingly reflected in the shortage of imported goods, including essential medicines and petroleum products.
Despite good revenue performance, there has been limited progress towards fiscal consolidation in FY2022/23. By the end of the third quarter of the fiscal year (the fourth quarter of 2022), revenue collection amounted to 11.6% of GDP. Expenditure totaled 18.3% of GDP driven by higher spending on interest, wages and salaries, and goods and services. Consequently, the fiscal deficit widened, reaching 6.7% of GDP for the first nine months of the year. The government is committed to reforming the Affordable Inputs Programme—a driver of deficits in recent years—by reducing its allocation and improving its efficiency.
Malawi’s public debt is currently assessed to be in distress, but the ongoing implementation of the Government’s debt restructuring strategy means that debt is sustainable on a forward-looking basis (The World Bank-IMF Debt Sustainability Analysis, November 2022). Rising domestic financing and borrowing from regional development banks on a non-concessional basis have significantly increased Malawi’s public debt from 32% in 2013 to 55% of GDP in 2020 and 64 % in 2022. This is increasingly reducing fiscal space for development spending and risks crowding out private sector investment.
Country Overview
Climate shocks, low agricultural productivity, and slow structural transformation mean that poverty levels remain high in Malawi. The internationally comparable poverty headcount ratio— $2.15 a day (2017 PPP)—stood at 71%, one of the highest globally. The Malawi Vulnerability Assessment Committee (MVAC) projected that 3.8 million people (about 20% country's population) in Malawi will face hunger between November 2022 and March 2023.
Development Challenges
Malawi continues to rely on subsistence, rainfed agriculture, which limits its growth potential, increases its susceptibility to weather shocks, and creates food insecurity. Trade policies and an unpredictable business environment continue to impede investment and commercialization, as well as erratic electricity supply.
Public investment has been low and of mixed quality. Weak fiscal management and economic policies have contributed to recurring and large fiscal deficits, mostly funded by high-cost domestic borrowing and resulting in a surge in public debt. Together with external shocks, economic management choices have compounded the acute balance of payments crisis, which needs addressing urgently for Malawi to realize its economic and development potential.
Last Updated: Apr 07, 2023
