Located in Southern Africa, Malawi is landlocked, sharing its borders with Mozambique, Zambia, and Tanzania. The country's estimated population is 20.93 million (2023) with an annual growth rate of 2.5%.
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 several political parties known as the Tonse Alliance. In late June 2024, President Chakwera appointed a new Vice President, Michael Usi, UTM Vice President, following the death of Vice President Saulos Chilima in plane crash on June 10, 2024. The next general election is scheduled September 16, 2025.
Economic Overview
Malawi’s economic situation remains challenging. A severe drought in 2024 has exacerbated macroeconomic imbalances and added to successive poor harvests and high food prices.
Food insecurity is hindering poverty reduction, with nearly three-quarters (71%) of the population living in extreme poverty. The financing of high fiscal deficits and rising food prices are fueling inflation. The current account deficit is estimated to reach 18.7% of GDP in 2024, putting further pressure on official reserves estimated at $119.9 million or 0.5 months of import cover in August 2024.
Fiscal revenues grew by 0.6 percentage points to 16.8% of GDP in 2023, buoyed by a good performance in tax revenue and grants disbursements by development partners. Despite this positive development, the country registered the highest fiscal deficit in sub-Saharan Africa, at 10.2% of GDP, due to fiscal slippages and the recapitalization of the Reserve Bank of Malawi to compensate for exchange rate losses.
The commitment to increasing exchange rate flexibility announced in November 2023 has yet to be consistently implemented. The exchange rate premium in the informal market has widened further, reflecting increasing distortions in the foreign exchange market. Real GDP is projected to grow only 1.8% in 2024, and an acceleration is expected in 2025 if reform implementation progresses.
The outlook is subject to significant downside risks, including continued fiscal slippages, which could entrench macroeconomic instability. Failure to address external imbalances may continue to result in input shortages.
Over the medium-long term, ongoing investments in commercialized agriculture and the mining sector are expected to boost economic activity and increase exports, but these are likely to take several years to materialize. Real GDP growth is therefore projected at 4.2% in 2025 due to agricultural sector recovery and spillovers towards manufacturing and transportation subsectors.
Development Challenges
Over the past two years, the low economic growth in Malawi remained below population growth, resulting in a decline in per capita GDP. The agricultural sector, which employs most of the workforce and continues to rely primarily on rain-fed production, faces declining productivity and real income. Diversification efforts and increased irrigation are proceeding slowly, making the country more susceptible to economic and climatic shocks, and further exacerbating socioeconomic challenges.
In the past three years, food insecurity has been increasing, especially towards the end of the year. El Niño induced poor harvest exacerbates food insecurity, which is worsened by higher food prices given that households increasingly rely on markets to complement their own food production
Persistent and widening fiscal and current account deficits, unsustainable debt burden, capital controls, and trade distortions have contributed to economic volatility, policy uncertainty, and a vicious cycle of crises.
The government initiated several fiscal and structural reforms, including external debt restructuring to restore macroeconomic stability and create foundations for sustainable and inclusive long-run growth. However, implementation of these reforms has been piecemeal, and momentum is slipping further.
Debt restructuring negotiations have proceeded slowly, with the authorities only concluding negotiations with China. Negotiations with commercial creditors and other bilateral creditors are still ongoing. Multiple price distortions, including an overvalued official exchange rate, remain prevalent in the economy and have resulted in widespread resource misallocation and complicated efforts toward macroeconomic stabilization.
Last Updated: Oct 21, 2024
