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 is vulnerable to external shocks, particularly climatic shocks.
The Malawi Growth and Development Strategy (MGDS), a series of five-year plans, guides the country’s development. The current MGDS III, building a Productive, Competitive and Resilient Nation, will run through 2022 and focuses on education, energy, agriculture, health, and tourism. The government’s 2063 vision aims to transform Malawi into a wealthy, self-reliant, industrialized upper middle-income country.
Malawi is a generally peaceful country and has had 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.
President Lazarus Chakwera and Vice President Saulos Chilima lead a coalition of nine political parties known as Tonse Alliance. From the Malawi Congress Party and United Transformation Movement Party respectively, they were elected in June 2020 with 58.6% of the votes, after the country’s constitutional Court nullified the results of elections held in May 2019.
They won against Peter Mutharika of the Democratic Progressive Party and United Democratic Front coalition, which received 39.4% of the vote.
Malawi’s economy has been negatively affected by simultaneous external and domestic shocks. While economic growth increased to 2.8% in 2021, it has remained below pre-pandemic levels. Dry spells at the beginning of the growing season decreased crop yields, and multiple tropical storms have damaged farmland and key infrastructure. In combination with macroeconomic imbalances, the outlook for 2022 remains subdued, with growth projected to decelerate to 2.1%. This growth rate equates to shrinking production in per capita terms, meaning economic recovery is projected to be gradual and significant risks remain.
Headline inflation picked up to 24.6% year-on-year in July 2022. Food inflation reached 32.5%, largely due to an increase in maize prices. Non-food inflation increased to 17.5%, 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, splits between official transfer rates and cash rates have since reappeared since. Official reserves continue to be very low, declining further from their gross position of 1.6 months of import cover at the start of the year. 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.
Coming from a record deficit, however, the FY2022/23 budget exhibits tangible steps toward fiscal consolidation. While the overall fiscal deficit in the FY2021/22 was 8.7% of GDP, the government projects that the deficit will be reduced to 7.7% of GDP in FY2022/23. The government is committed to reforming the Affordable Inputs Programme—a driver of deficits in recent years—by significantly reducing its allocation, and it continues to attempt to ramp up public investment, focusing on foreign-financed projects in this FY.
Debt vulnerabilities have significantly increased in recent years, too. The December 2021 Debt Sustainability Analysis indicates that Malawi’s external and public debt are both at high risk of debt distress and that the debt is unsustainable. 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. This is increasingly reducing fiscal space for development spending and risks crowding out private sector investment.
Climate shocks, low agricultural productivity, and slow structural transformation mean that poverty levels remain high in Malawi. The national poverty rate has only marginally declined from 51.5% in 2015/16 to 50.7% in 2019/20. The internationally comparable poverty headcount ratio— $1.90 a day (2011 PPP)—stood at 73.5%, one of the highest globally. The Malawi Vulnerability Assessment Committee (MVAC) report for the 2022/23 consumption season, released in August, has shown that about 2.3 million people face food insecurity and require assistance. The analysis also anticipates a total of 3.8 million (about 20% country's population) people will be facing critical food security outcomes in the next 5-6 months.
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: Oct 06, 2022