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- GDP (PPP):
- $13.7 billion
- 5.7% growth
- 4.7% 5-year compound annual growth
- $780 per capita
- Inflation (CPI):
- FDI Inflow:
Recent reforms have put greater emphasis on simplifying Malawi’s business start-up process and creating a more vibrant private sector through decentralization. However, the East African nation has been mired in a fiscal environment characterized by a large budget deficit and rising debt service costs.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 51.8 (down 3 points)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 146th
- Regional Ranking: 36th in Sub-Saharan Africa
- Notable Successes: Trade Freedom
- Concerns: Corruption, Management of Public Finance, and Regulatory Efficiency
- Overall Score Change Since 2012: –4.6
Lingering state interference in the private sector discourages dynamic long-term development. Malawi’s growth potential remains fragile, hampered by an inefficient investment regime that undermines entrepreneurship and job growth. Pervasive corruption and a weak judicial system continue to compound uncertainty and risk.
Malawi achieved independence from the British 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 reelected in 2009, died in April 2012 and was replaced by Vice President Joyce Banda. In May 2014, Peter Mutharika, brother of the late president, won the presidency in elections of questionable legitimacy. Malawi is one of Africa’s most densely populated countries. More than half of the population lives below the poverty line, and over 85 percent depend on subsistence agriculture. Tobacco, tea, and sugar are the most important exports. In late 2013, international donors suspended aid to protest a scandal that involved the public looting of roughly 1 percent of Malawi’s annual GDP over a period of six months.
Corruption is endemic in Malawi. President Peter Mutharika still faces significant challenges in rebuilding popular trust in state institutions and political stability as fallout from the large government corruption “Cashgate” scandal that erupted in 2013 continues to reverberate. Judicial independence is generally respected, but the overburdened and inefficient court system lacks resources, personnel, and training.
The top individual income and corporate tax rates are 30 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 17.4 percent of total domestic income. Government spending has risen to 49.3 percent of total domestic output. The budget deficit has increased to over 5 percent of GDP, and public debt has reached a level equal to over 60 percent of GDP.
Launching a business has become more straightforward, but licensing requirements remain time-consuming. The labor market is poorly developed. Most of the population is employed outside of the formal sector, primarily in agriculture. The administration elected in 2014 pledged to continue the market-based exchange rate and market-determined fuel prices, but the IMF reports that it has “drifted off-track.”
Malawi’s average tariff rate is 3.8 percent. Importation of goods is relatively time-consuming. Foreign and domestic investors are generally treated equally under the law. State-owned enterprises operate in many sectors of the economy. 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.