Located in Southern Africa, Malawi is landlocked, sharing its borders with Mozambique, Zambia, and Tanzania. The country's estimated population is 20.41 million (2022) with an annual growth rate of 2.6%
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. The next general election is scheduled September 16, 2025.
Economic Overview
Malawi’s economy is projected to grow by 2.0% in 2024 – a contraction in per capita terms given 2.6% population growth. Limited availability of agricultural inputs and the impact of prolonged dry spells during the growing season will result in reduced agricultural output.
Continued liquidity challenges in foreign exchange markets are expected to continue affecting the importation of raw materials and productions inputs, constraining economic activity in industry and services. Headline inflation is expected to remain high and average 27.4% in 2024.
The disinflationary impact of tightening monetary policy will be offset by lower agricultural output and resultant pressures on food prices. The adjustment of energy and other utility prices necessitated by the adjustment of the kwacha and planned for 2024 will add to inflationary pressures. Revenue is projected at 21.5% of GDP in FY2024/25. This outcome assumes the achievement of ambitious tax revenue targets, as well as increased disbursements of grants, which are expected to reach 5.4% of GDP, the highest in the last decade.
Expenditure is expected to moderate slightly to 28.4% of GDP, thus translating to a projected fiscal deficit of 6.6% of GDP in FY2024/25. Failure to attain ambitious revenue targets and overspending would widen the deficit further, which would add to an already high and unsustainable public debt burden.
Imports are expected to continue rising, driven in particular by the need for increased food imports to address domestic shortages. While exports are also projected to recover, the impact of prolonged dry spells on agricultural production may constrain export growth.
The current account deficit is projected to remain high at 20% of GDP. With heightened food insecurity, both from high food prices and shortages owing to anticipated lower agriculture output, poverty is expected to worsen in 2024. The proportion of people living below the poverty line of $2.15 a day will increase slightly to 72% in 2024.
Development Challenges
Vulnerabilities in the Malawian economy continue to be exacerbated by weather and climate-related shocks paired with scarcity of foreign exchange that constrains the importation of raw materials.
Recurring floods and prolonged dry spells compounded by limited availability of agricultural inputs and weak domestic and regional market integration keep agricultural output below its potential.
Persistent liquidity challenges and distortions in foreign exchange markets continue to constrain the importation of raw materials for the production process, further undermining growth.
A lack of trade dynamism and low levels of investment persist. Lower agricultural output and slow implementation of policies to support crop diversification and economic transformation constrain exports, as does the widespread presence of non-tariff barriers, strict capital controls, and high trade costs. These, in turn, affect the accumulation of foreign exchange reserves. With continued high import demands, the current account deficit remains elevated, placing additional pressure on reserves.
Fiscal imbalances have been a central challenge to reducing inflation, following years of an expansionary fiscal policy. Slow implementation of public financial management reforms, paired with growing statutory expenditure requirements, continue to exert upward pressure on government expenditure.
With limited availability of external financing and high levels of domestic borrowing, public debt continues to rise, resulting in debt servicing requirements in excess of 35% of revenues.
The prevalence of poverty remains high, with rates exceeding 70% - one of the highest in the world. The continued high rate of poverty is exacerbated by a sluggish economic recovery and persistent food shortages following a series of weather shocks, high susceptibility to fluctuations in food prices, and ongoing rapid population growth.
Last Updated: Apr 11, 2024
