Economy

Malawi's economy is based largely on agriculture, which accounts for more than 90 percent of its export earnings, contributes 45 percent of gross domestic product (GDP), and supports 90 percent of the population. Malawi has some of the most fertile land in the region, and almost 70 percent of agricultural produce comes from smallholder farmers. Land distribution is unequal, with more than 40 percent of smallholder households cultivating less than 0.5 hectares. The country's export trade is dominated by tobacco, tea, cotton, coffee, and sugar.

From 1995 to 1997 Malawi 's government followed good economic policies; but in recent years the pace of reforms has slowed, expenditure control has weakened, and agricultural prospects have become mixed. Tobacco revenues declined in 2000 because of slumping prices, declining yields, and declining quality. This, together with volatile exchange rates, high annual inflation (30 percent in February 2001), and high real interest rates, has resulted in slow growth: about 2 percent in 2000 and -1.5 percent in 2001.

Since taking office in May 2004, President Mutharika has implemented some bold policies to curb fiscal spending and tackle corruption. These policies were also meant to counter the mixed results of the growth-oriented reform program attempted by the previous government over the last two years. Recent measures in expenditure control and right-sizing the government have helped Malawi meet and exceed the end-June 2004 macroeconomic targets. The IMF and the new Government agreed on a Staff Monitored Program (SMP) starting from July 2004. Following strong macroeconomic  performance under the SMP, a new PRGF was approved in August 2005. The good performance provided for a gradual reduction in domestic debt and the domestic interest bill for the first year since the late 1990s. However, Malawi 's economy still depends heavily on aid from international financial institutions and individual donors.

Source : World Bank