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- GDP (PPP):
- $14.3 billion
- 1.9% growth
- 6.0% 5-year compound annual growth
- $858 per capita
- Inflation (CPI):
- FDI Inflow:
Malawi’s economic freedom score is 55.4, making its economy the 124th freest in the 2014 Index. Its score is essentially unchanged from last year, with improvements in property rights, labor freedom and the control of government spending undermined by a significant loss of monetary stability. Malawi is ranked 22nd out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world average.
Over the 20-year history of the Index, Malawi’s economic freedom has been largely stagnant. Despite notable score improvements in trade freedom, monetary freedom, and fiscal freedom, its overall gain has been largely offset by a notable decline in business freedom and a smaller decline in property rights.
Malawi’s economy continues to be rated “mostly unfree.” It lags in competitiveness and the promotion of the broad-based economic growth so essential to the reduction of poverty. The poor quality of much of the basic infrastructure and the government’s inefficiency in delivering public goods have been serious impediments to vibrant economic development.
Malawi achieved independence in 1964 and was ruled as a one-party state by Dr. Hastings Kamuzu Banda for 30 years. President Bingu wa Mutharika, elected in 2004 and re-elected in 2009, died in April 2012 and was replaced by Vice President Joyce Banda. Malawi is one of Africa’s most densely populated countries. Over 85 percent of the population depends on subsistence agriculture, and the agricultural sector accounts for over 35 percent of GDP and over 80 percent of exports. Tobacco, tea, and sugar are the most important exports. Foreign donors, who provided an average of 36 percent of government revenue since 2006, suspended general budget support for Malawi in 2011. In a bid to have donor funding restored, Banda has reversed several of her predecessor’s anti-market economic policies.
Although the constitution provides for the separation of powers among the judicial, executive, and legislative branches of government, the effectiveness of checks and balances has varied. President Banda’s administration has been praised for efforts to reduce waste and fight corruption. A law that limited the power of the courts to issue injunctions was repealed, and the head of the national police was replaced.
The top individual income and corporate tax rates are 30 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. Overall tax revenue is about 20 percent of the domestic economy. Government expenditures equate to 35 percent of GDP. Public debt reached about 55 percent of the domestic economy in 2013. Public finances have been under stress, and the new government has looked to tighten spending.
Commercial regulations have not been implemented or enforced effectively. Economic diversification has lagged, and much private-sector activity takes place outside of the formal economy. Labor regulations, although not fully enforced, are relatively rigid. In 2012, the new government devalued Malawi’s currency to allow a market-determined exchange rate. A new three-year IMF agreement worth $157 million soon followed.
Malawi’s average tariff rate is 6.2 percent. Importing goods is costly and time-consuming. Access to foreign exchange can be difficult at times. The financial sector, dominated by banking, remains underdeveloped, and a full range of modern financing tools is not readily available. Capital transactions and foreign exchange accounts are also limited.