The economic context of Malawi

Economic Indicators

Despite implementing substantial economic and structural reforms aimed at sustaining growth, Malawi remains one of the world’s poorest countries. Its economy is heavily reliant on agriculture, which provides employment for two-thirds of the population, making it highly vulnerable to external shocks, especially those related to climate. Over the past three years, per capita income has declined as economic growth has consistently lagged behind population growth. Frequent climatic disasters and other external shocks have deepened the country’s challenges, limiting the ability of poor households to build resilience. In 2023, real GDP grew by just 1.6% year-on-year, constrained by limited access to inputs due to foreign exchange shortages and the effects of Tropical Cyclone Freddy. In 2024, the economy continued to face serious difficulties, with real GDP growth slowing to 1.8% amid a severe drought and persistent foreign exchange constraints. Real GDP is projected to grow modestly by 2% in 2025, supported by a partial recovery in the agricultural sector. However, growth in the industrial and services sectors is expected to remain subdued due to ongoing foreign exchange shortages, which continue to limit the import of production inputs. In 2026, GDP growth is forecast at 2.4% (World Bank).

Government expenditure consistently outpaced revenue growth, leading to a rising fiscal deficit in recent years. Fiscal revenues rose by 0.6 percentage points to 16.8% of GDP in 2023, supported by strong tax revenue performance and increased grant disbursements from development partners. Despite this, Malawi recorded the highest fiscal deficit in sub-Saharan Africa at 10.2% of GDP, driven by fiscal slippages and the recapitalisation of the Reserve Bank of Malawi to offset exchange rate losses. After narrowing to 7.7% in 2024, the fiscal deficit is projected to widen again to 8.7% of GDP in 2025, largely due to increased election-related spending and the need to cover critical expenditures previously funded by the United States. After increasing in recent years, public debt declined to an estimated 84.5% in 2024, from 91.3% one year earlier. Nevertheless, according to Coface, Malawi is in default with its external bilateral creditors, mainly India and China, as well as commercial lenders like the Trade & Development Bank and Afreximbank. It requires USD 986 million in debt relief by 2027—about 7% of GDP. While bilateral restructuring commitments have been secured and talks with commercial creditors are ongoing, over 60% of Malawi’s external debt is multilateral and not subject to restructuring. According to official figures, Malawi’s average annual inflation rate reached 32.2% in 2024, up from 28.8% in 2023. In the short term, inflation is expected to ease only slightly due to a weak agricultural recovery, new import bans limiting supply, and continued high money supply growth.

The World Bank estimated the unemployment rate at 5% in 2024, but the vast majority of earners in Malawi participate in the informal economy. Moreover, the combination of external imbalances, high inflation, and fiscal constraints has deepened economic vulnerabilities and hindered recovery, with the poverty rate rising to 71.2% in 2024. The country has one of the lowest GDP per capita (PPP) in the world, estimated at USD 1,713 in 2024 (IMF). Other challenges include addressing scarce skilled human resources, providing healthcare, and managing population growth.

Main Sectors of Industry

With about 80% of the population living in rural areas, the economy of Malawi is predominantly agricultural: the primary sector is estimated to account for 30.4% of GDP, 80% of export revenues, and 61.7% of employment (World Bank, latest data available). The main export and most cultivated crop is tobacco (which represents around 40% of total exports), while other revenue-generating crops include corn (maize), tea, coffee, sugarcane, cotton, sorghum, and potatoes. Historically, the country produces enough food to feed its population, though harvests can be seriously affected by adverse weather conditions, as was the case in 2015, 2016, and 2024 with El Niño-induced droughts. Based on FAO estimates, maize import requirements for the 2024/25 marketing year (April/March) are expected to be higher than usual due to the poor 2024 harvest. Imports will likely come from outside the subregion, as the El Niño-induced drought in 2024 caused production declines across Southern Africa, reducing the availability of exportable surpluses within the subregion.

Though still underdeveloped, the industrial sector contributes an estimated 15.3% of GDP, employing a mere 8% of the workforce. The majority of Malawi's industrial activity comes from manufacturing and food processing. Despite the government’s efforts to boost competitiveness, several challenges keep hindering the sector, including a poor business climate, a lack of well-developed infrastructure, and a shortage of skilled labour to operate machinery. Mining activities are at a small-scale level (1% of GDP), as Malawi has no oil or precious metals (except for ruby). However, the country has some deposits of bauxite, asbestos, graphite, and uranium. Malawi's industrial production saw a year-on-year decrease of 14% in 2024 amid foreign exchange scarcity that induced production cuts. All manufacturing sub-sectors saw declines, except for the production of beverages, tobacco products, and rubber and plastics, which grew by 2.4%, 14.9%, and 21.5%, respectively. The manufacturing sector's output fell by 9.3%, while utilities experienced a significant decline of 38.2%.

The services sector is the major contributor to the economy, accounting for more than half of GDP (47.5%) and 30.3% of employment. The main activities include tourism, health services, the banking sector, telecommunications, and retail, with the government of Malawi holding significant shares in most of these sectors. Tourism is considered a priority economic sector in the country’s long-term development plan “Malawi Vision 2063”: prior to the COVID-19 pandemic, the sector accounted for more than 525,000 jobs, representing almost 7% of overall employment. After plummeting due to the pandemic, in 2024/25, travel & tourism contributed 6.7% of GDP, as per the National Budget. Malawi's banking sector, overseen by the Reserve Bank of Malawi (RBM), is generally stable. However, only 25% of the adult population utilizes banking services. The sector comprises eight commercial banks, with the National Bank of Malawi and Standard Bank of Malawi dominating, holding a combined market share of 46% for total assets and 47% for total deposits. They also represent 56% of total loans and 58% of total equity capital (U.S. Trade Administration).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	61.7	8.0	30.3
Value Added (in % of GDP)	30.4	15.3	47.5
Value Added (Annual % Change)	0.7	2.5	1.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

53/100

World Rank:

145

Regional Rank:

33

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Sources of General Economic Information

Ministries

List of Malawi's Ministries
Ministry of Finance and Economic Affairs
Ministry of Trade and Industry
Ministry of Mining

Statistical Office

National Statistical Office of Malawi

Central Bank

Reserve Bank of Malawi

Stock Exchange

Malawi Stock Exchange

Economic Portals