2015 Index of Economic Freedom

Malawi

overall score54.8
world rank126
Rule of Law

Property Rights40.0

Freedom From Corruption37.0

Limited Government

Government Spending49.0

Fiscal Freedom78.5

Regulatory Efficiency

Business Freedom49.1

Labor Freedom63.1

Monetary Freedom53.8

Open Markets

Trade Freedom72.2

Investment Freedom55.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 17.1 million
  • GDP (PPP):
    • $15.0 billion
    • 5.0% growth
    • 5.3% 5-year compound annual growth
    • $879 per capita
  • Unemployment:
    • 7.6%
  • Inflation (CPI):
    • 27.7%
  • FDI Inflow:
    • $118.4 million
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Malawi’s economic freedom score is 54.8, making its economy the 126th freest in the 2015 Index. Its score is 0.6 point lower than last year, reflecting declines in property rights, the control of government spending, monetary freedom, and trade freedom that outweigh gains in business freedom, investment freedom, and freedom from corruption. Malawi is ranked 25th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world average.

Malawi has yet to develop the basic institutional framework to improve economic freedom and address poverty. Government efforts to reverse some anti-market policies in an attempt to attract donors have largely been offset by high levels of government spending and soaring inflation.

A weak institutional foundation and structural shortcomings keep Malawi “mostly unfree.” The independence of the judiciary is recognized in the constitution but not always observed in practice. Business regulations are among the world’s most inefficient, and the labor market is rigid. The financial sector is underdeveloped and does not effectively allocate capital to productive means. Trade freedom is below the world average.

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Background

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 re-elected in 2009, died in April 2012 and was replaced by Vice President Joyce Banda. In May 2014, Peter Mutharika, brother of the late president, was elected president in elections regarded as flawed. 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 six months.

Rule of LawView Methodology

Property Rights 40.0 Create a Graph using this measurement

Freedom From Corruption 37.0 Create a Graph using this measurement

Treason charges against President Mutharika citing efforts to block the democratic accession of his predecessor, Joyce Banda, to the presidency were quickly dropped following his May 2014 election victory, raising concerns about the judiciary’s independence. Corruption remains endemic, with an estimated 30 percent of Malawi’s budget lost to fraud (e.g., through “Cashgate” transactions using the government’s automated payments system).

Limited GovernmentView Methodology

Malawi’s individual and corporate income tax rates are 30 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden has reached 18.8 percent of gross domestic product. Public expenditures are equal to 41.2 percent of total domestic economic activity, and public debt is equivalent to about 69 percent of GDP.

Regulatory EfficiencyView Methodology

The inefficient business environment continues to impede broader economic development. Incorporating a business takes over a month on average, although there is no minimum capital requirement. In the absence of a well-functioning labor market, informal labor activity persists in many sectors. The new government has embraced higher subsidies, and the inflation rate is over 25 percent.

Open MarketsView Methodology

Malawi’s average tariff rate is 6.4 percent. Importing goods can take weeks. Foreign and domestic investments are generally treated equally under the law, but investors face bureaucratic hurdles. The financial sector is underdeveloped, and less than 20 percent of the population has access to banking services. The high cost of credit suppresses business formation. The state owns the two largest banks.

Country's Score Over Time

Bar Graph of Malawi Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Mauritius76.4-0.1
2Botswana69.8-2.2
3Cabo Verde66.40.3
4Rwanda64.80.1
5Ghana63-1.2
6South Africa62.60.1
7Madagascar61.70.0
8Swaziland59.9-1.3
9Uganda59.7-0.2
10Namibia59.60.2
11Benin58.81.7
12Zambia58.7-1.7
13Burkina Faso58.6-0.3
14Côte d'Ivoire 58.50.8
15Gabon58.30.5
16Senegal57.82.4
17Tanzania57.5-0.3
18Djibouti57.51.6
19The Gambia57.5-2.0
20Seychelles57.51.3
21Mali56.40.9
22Nigeria55.61.3
23Kenya55.6-1.5
24Mozambique 54.8-0.2
25Malawi54.8-0.6
26Niger54.6-0.5
27Burundi53.72.3
28Mauritania53.30.1
29São Tomé and Príncipe 53.34.5
30Togo533.1
31Liberia52.70.3
32Comoros52.10.7
33Guinea52.1-1.4
34Guinea-Bissau520.7
35Cameroon51.9-0.7
36Sierra Leone51.71.2
37Ethiopia51.51.5
38Lesotho49.60.1
39Angola47.90.2
40Chad45.91.4
41Central African Republic45.9-0.8
42Democratic Republic of Congo454.4
43Republic of Congo 42.7-1.0
44Equatorial Guinea40.4-4.0
45Eritrea38.90.4
46Zimbabwe37.62.1
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