The economic context of Malawi

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Compared to other countries, Malawi's economy proved to be resilient to the Covid-19 crisis, mainly thanks to the dominant role played by the agricultural sector (Coface). After slowing down to 0.9% in 2020, GDP growth picked up to 2.2% in 2021, helped by a good harvest, and it is expected to further accelerate to 3.5% in 2022 and 4.5% in 2023 (IMF). Agricultural production and public investments will be the main drivers of growth (Coface).

Malawi's financial situation deteriorated due to the Covid-19 pandemic, as balance of payment and fiscal needs increased in the midst of declining revenues. In response to the health crisis, the authorities adopted measures including strengthening the health care system, stepping up social spending, ensuring food security, and easing liquidity constraints in the banking system (IMF). Economic activity started to recover in 2021, but public finances worsened. Public deficit (including grants) increased from -6.6% GDP in 2020 to -7.4% GDP in 2021, and is expected to widen to -10.4% GDP in 2022 before decreasing to -9.5% GDP in 2023 (IMF). Investments under the Malawi III growth and development strategy, as well as agricultural subsidies, will weigh on expenditures (Coface). Public debt continued to increase, from 54.7% GDP in 2020 to 59.3% GDP in 2021, and is expected to soar to 65.4% GDP in 2022 and 69.5% GDP in 2023 (IMF). Malawi’s large current account deficit is putting pressure on foreign exchange reserves, which represent less than six weeks of imports, leaving the economy vulnerable to shocks (Coface). The IMF expressed concerns over Malawi’s high risk of overall and external public debt distress. The depreciation of the Malawian kwacha (more than 6% in 2021) and increases in prices for fuel, fertilizers, and food pushed inflation up to 9.5% in 2021 (IMF). It is expected to remain high in 2022 (9%) and to decline to 6.9% in 2023 (IMF). The government's priority, outlined in the Covid-19 Socio-Economic Recovery Plan 2021-2023, is to support economic recovery while preserving macroeconomic stability. In the long term, President Chakwera’s Malawi Vision 2063 aims for the country to reach upper-middle income status by 2063 by investing in physical and human capital (IMF). Malawi has expressed its interest in a new Extended Credit Facility arrangement with the IMF, but progress towards an arrangement depend on strong commitment to an adjustment program as well as sizeable financing support from the international community and regional development banks (IMF).

In Malawi, poverty has been increasing in rural areas where 85% of the population lives, compared to urban areas where it fell significantly from 25% to 17%. Unemployment was around 6% in 2020 (World Bank). Other challenges include addressing scarce skilled human resources, providing healthcare, and managing population growth. The country has made progress in combating AIDS, although 10% of the population is HIV-positive.

Main Sectors of Industry

With about 80% of the population living in rural areas, the economy of Malawi is predominately agricultural: in 2020, the sector accounted for 22.7% of GDP, 80% of export revenues and 76% of employment (World Bank). The main export and most cultivated crop is tobacco - this, in a context where the country is looking to diversify its economy. Aside from tobacco, other revenue-generating crops include tea, coffee, sugarcane, cotton, sorghum, potatoes and corn (maize). Historically, the country produces enough food to feed its population, though harvests can be seriously affected by adverse weather conditions, like it was the case in 2015 and 2016 with El Nino-induced droughts.

Though still underdeveloped, the industrial sector contributed an estimated 18.5% of GDP in 2020. The majority of Malawi's industrial activity comes from manufacturing and food processing. Despite the government’s efforts to boost competitiveness, several challenges kept hindering the sector, including poor business climate, a lack of well-developed infrastructure, and the lack of skilled labour to operate machinery. Mining activities are at a small-scale level, since Malawi has no precious metals or oil (except for ruby). However, the country has some deposits of bauxite, asbestos, graphite, and uranium. The industrial sector only employs 5% of the workforce.

The services sector is the major contributor to the country’s GDP (52.6% in 2020). 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. The sector employs 18% of the workforce. In 2020, due to the COVID-19 pandemic, the service sector collapsed, declining by 6% (Coface). The agricultural sector proved more resilient, expanding by 0.5%, but was nonetheless hurt by lower cotton prices, supply chain disruptions and the decline in tobacco prices and production (Coface). In 2021, the recovery was driven by a rebound in agricultural production.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	76.4	5.4	18.3
Value Added (in % of GDP)	21.1	17.2	55.6
Value Added (Annual % Change)	3.0	1.2	-0.3

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

Statistical Office

National Statistical Office of Malawi

Central Bank

Reserve Bank

Stock Exchange

Malawi Stock Exchange

Economic Portals