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Quick Facts
- Population:
- GDP (PPP):
- $21.1 billion
- 3.0% growth
- 3.6% 5-year compound annual growth
- $1,134 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Malawi’s economic freedom score is 52.0, making its economy the 148th freest in the 2018 Index. Its overall score has decreased by 0.2 point, with lower scores for fiscal health, investment freedom, and property rights overwhelming improvements in monetary freedom, labor freedom, and judicial effectiveness. Malawi is ranked 31st among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.
Historically, landlocked Malawi’s economic performance has been constrained by policy inconsistency, macroeconomic instability, limited connectivity to the region and the world, poor infrastructure, rampant corruption, high population growth, and poor health and education outcomes that limit labor productivity. The government has run large fiscal deficits in recent years, and the costs of debt service are rising. Pervasive corruption deters foreign investment. The judicial system is independent but also slow and inefficient.
Background
Densely populated Malawi achieved independence from the U.K. in 1964 and was ruled as a one-party state by Dr. Hastings Kamuzu Banda for 30 years. President Bingu wa Mutharika died in 2012 and was replaced by Vice President Joyce Banda. In 2014, Bingu wa Mutharika’s brother Peter won the presidency in elections of questionable legitimacy. More than half of the population lives below the poverty line, and most depend on subsistence agriculture. Tea and sugar are important exports. The government, faced with land degradation and weak global demand, seeks to diversify beyond tobacco, which contributes the bulk of foreign exchange earnings. A border dispute with Tanzania centers on Lake Malawi and its potentially large oil and gas reserves.
Property rights do not receive adequate protection, and corruption in the various customs, tax, and procurement agencies impedes business. The official government estimate is that 30 percent of the annual budget is lost to corruption, but the true percentage may be much higher. The judicial system is independent but inefficient. There has been a recent upsurge in criminal activity by members of the police force.
The top individual income and corporate tax rates are 30 percent. Other taxes include value-added and inheritance taxes. The overall tax burden equals 22.5 percent of total domestic income. Over the past three years, government spending has amounted to 31.3 percent of total output (GDP), and budget deficits have averaged 6.3 percent of GDP. Public debt is equivalent to 62.1 percent of GDP.
The process for starting a business can be cumbersome. The vast majority of working-age Malawians are employed in subsistence agriculture. Unskilled labor is plentiful, but skilled labor and semiskilled labor are in short supply. The government slashed the number of Farm Input Subsidy beneficiaries from 1.5 million to 900,000 during the 2016–2017 agricultural season.
Trade is significant for Malawi’s economy; the combined value of exports and imports equals 79 percent of GDP. The average applied tariff rate is 4.2 percent. Nontariff barriers significantly impede trade. Government openness to foreign investment is below average. The financial sector remains stable. Measures to open the banking sector to greater competition have been adopted, but progress has been slow.