- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Mainly due to the coronavirus pandemic, Malawi’s GDP fell in 2020, ending several years of satisfactory growth of around 4%. GDP growth for 2021 is estimated to reach 2.7% of GDP. According to estimates, the inflation rate for 2021 reached approximately 9%, which more or less corresponds to the long-term trend. Malawi has chronically high trade deficits due to limited export potential, and the national currency, the Malawian kwacha, has continued to depreciate against global currencies, depreciating by about 5.5% in 2021 against the USD.
According to cheeroutdoor.com, the country’s development is guided by a series of five-year growth and development strategies; the third and current priorities, covering the period 2017-2022, are the development of education, energy, agriculture, healthcare and tourism. Agriculture accounts for roughly a third of Malawi’s GDP and 80% of export earnings. The key crops are tobacco (approx. 70% of total exports, although the global demand for it has been decreasing for a long time) and tea (approx. 10%). In 2020, the production of medical and industrial hemp was allowed, from which Malawi promises to replace the decline in income from tobacco production, and in 2021 the government began issuing the first licenses to growers. Among other things, coal and limestone are mined in Malawi, the Kayelekera uranium mine has been closed since 2014 due to low world uranium prices. For the time being, the reserves of other raw materials, such as bauxite, gold and platinum, are little used.
The brake on industrial development is insufficient electrification; only about 15% of the population has access to electricity. A new coal-fired power plant with an installed capacity of 300 MW is to be commissioned in 2024. Due to the underdevelopment of the national economy, Malawi is highly vulnerable to shocks such as fluctuations in weather or commodity prices on international markets. However, agricultural production in 2021 was relatively very good thanks to the abundant rainy season, a historical record of million tons was achieved in the production of cereals (i.e. especially corn).
In 2018-21, Malawi was the recipient of a three-year IMF extended credit facility of SDR 78 million (approx. USD 112 million). The IMF evaluated the implementation of the program as generally satisfactory, although it expressed reservations about the high public debt and massive state subsidies, especially in agriculture. Malawi seeks to obtain a follow-on IMF loan program from 2022. The main challenges in the following period will be fiscal consolidation, improving the transparency of public finances, building physical infrastructure and developing the private sector.
|GDP growth (%)||4.4||-1||2.7||2.8||3.3|
|Export of goods (billion USD)||1||0.9||1||1.2||1.3|
|Import of goods (billion USD)||4.9||4.5||4.7||4.8||5|
|Trade Balance (Billion USD)||-1.9||-1.8||-1.7||-1.8||-1.7|
|Industrial production (% change)||3.8||-1.6||2.2||2.4||2.6|
|OECD export risk||7/7||7/7||7/7||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-12.6|
|Public debt (% of GDP)||74.4|
|Current account balance (billion USD)||-1.3|
Malawi has run relatively high budget deficits in recent years. The budget for the fiscal year (i.e. July-June) 2020/2021 ended with a particularly significant deficit of 12.6% of GDP. The budget for the fiscal year 2021/22 envisages a deficit of 7% of GDP, but it seems that in reality it will reach about 10%. Compared to last year, spending on subsidies for agricultural inputs for small farmers, healthcare spending in connection with COVID-19 was increased, and on the other hand, tax breaks were introduced, such as exemption from VAT on certain agricultural inputs and on the import of medical and pharmaceutical products. The largest expenditure items in the budget are the chapters on education and healthcare, as well as energy and the government program of subsidized agricultural inputs (seeds, fertilizers) for million small farmers.
Malawi’s indebtedness has grown significantly in the last six years and by the end of 2021, the amount of foreign debt reached approximately 39% of GDP. In addition to traditional creditors (IMF, World Bank, etc.), the role of China and India has been growing in recent years. Malawi also seeks support for Israel and in 2020 announced its intention to open an embassy in Jerusalem as the first African country. Due to its low export capacity, Malawi suffers from chronic trade deficits (approx. 20% in 2021). Foreign exchange reserves at the end of 2021 amounted to USD 718 million, which covers about three months of imports.
Malawi’s banking system is relatively small. However, commercial banks provide all common services, incl. letters of credit. The use of payment cards is still less widespread and limited to payments in larger shops, hotels, etc., especially in larger cities. The Malawian kwacha is used in the domestic payment system, the US dollar is the most used currency in the foreign payment system.
The function of banking supervision and management of monetary policy is performed by the central bank – Reserve Bank of Malawi, which has branches in Lilongwe and Blantyre. A list of commercial banks operating in Malawi can be found on its website with links to their websites. In response to the slowdown in economic activity due to the COVID-19 pandemic, the central bank reduced the base interest rate by 1.5% to 12% in November 2020, this rate was still valid in April 2022. In the future, a rather moderate increase in rates can be expected in an attempt to moderate inflation.
Malawi’s tax system is quite complicated and changes relatively often. Income from a source in Malawi is subject to taxation, regardless of the tax residency of the payer.
The personal income tax rate is progressive according to annual income in Malawi:
- 0 – 1,200,000 MWK: 0%
- MWK 1,200,000 – 36,000,000: 30%
- above 36,000,000 MW: 35%
Corporate Taxes: The normal rate in Malawi for registered legal entities is 30%, mining companies have an enhanced rate of 40%. Companies based outside Malawi (branches) pay 35% tax. Companies that operate in priority sectors (processing of agricultural raw materials and electricity generation) do not pay corporate tax for up to 10 years, then pay a reduced tax of 15% (non-resident companies 20%).
VAT: The basic rate is 16.5%. Textbooks and school supplies, fertilizers, trucks and salt are zero-rated. Machinery for production, water management and financial services, solar-powered equipment and devices (panels, inverters, lights, etc.) and liquefied natural gas (LPG) are exempt from the tax.