Malawi remains stuck in a vicious cycle where structural challenges, endemic macroeconomic instability, and restrictive trade policies reinforce one another-contributing to the gradual erosion of the export economy and limiting the creation of productive jobs.

Malawi's economic fundamentals remain weak. Sluggish growth, heightened inflationary pressures, and insufficient private investment continue to undermine living standards, according to the 22nd Edition of the Malawi Economic Monitor (MEM): Getting Reforms Right. While the new administration has introduced important reforms since the September 2025 elections, economic performance continues to fall short of population needs, development goals, and the urgent demand for jobs.

In 2025, real GDP grew by 1.9%, only a slight improvement from 1.7% in 2024 and still far below the 2.6% population growth rate, resulting in a continued decline in GDP per capita for the fourth consecutive year. Agriculture saw a partial recovery after the 2024 drought, but output remains limited by unpredictable rainfall, fertilizer shortages, power interruptions, and acute shortages of foreign exchange, which restrict access to critical inputs. Inflation averaged 28.4% in 2025, the highest in the region, fuelled by rising food prices, currency depreciation, and large fiscal deficits, eroding household incomes and business confidence.

Though agriculture receives more than 10% of the national budget, productivity remains low. Maize yields average only 2.1 MT/ha, well below national targets, hindered by delayed input delivery, limited adoption of modern technologies, climate shocks, and inefficiencies in subsidy programs. Low productivity in agriculture-where most Malawians work-continues to constrain incomes and rural job creation.

The private sector faces an exceedingly difficult business environment: high borrowing costs, limited access to foreign exchange, unpredictable regulations, and pervasive informal payment demands. These challenges leave most firms operating below half of their productive capacity, with real sales growth of just 3% and only 6% of firms exporting. Export and job creation falls far short of absorbing the nearly 270,000 young people who enter the labor market each year.

Fiscal and external imbalances have intensified since 2022, with fiscal deficits averaging 10.9% of GDP, among the highest in Sub-Saharan Africa. Heavy domestic borrowing has pushed interest payments to nearly half of total domestic revenue, crowding out productive spending and investment in infrastructure and human capital. Public debt has reached unsustainable levels; while bilateral debt restructuring is progressing, negotiations with external commercial creditors remain unresolved.

Malawi's current account deficit is near 20% of GDP, with imports more than two-and-a-half times larger than exports. The exchange rate remains significantly overvalued, with a parallel market premium above 140%, discouraging exports and reducing foreign currency inflows. Foreign reserves remain critically low-below one month of imports-constraining the country's ability to withstand global commodity price shocks and adverse weather events.

The outlook remains weak, with GDP projected to grow 2.3% in 2026 and 2.7% in 2027-only marginally above population growth and insufficient to meaningfully raise living standards or generate the volume of jobs needed. Persistent foreign exchange shortages, high inflation, and fiscal pressures will continue to restrain production and increase costs.

To address these challenges and support job creation, the MEM outlines four priority reform areas:

1. Restore macroeconomic stability through stronger fiscal discipline, removal of inefficient tax exemptions, modernization of revenue systems, completion of debt restructuring, improved public sector efficiency, unified exchange rates, and cost-reflective pricing for fuel, fertilizer, and electricity-creating the stability firms need to invest and expand.
2. Enable a dynamic private sector by removing foreign exchange surrender requirements, reducing non-tariff barriers, ensuring predictable agricultural and trade policies, modernizing land and collateral systems, and strengthening the regulatory framework for mining investments.
3. Improve service delivery and build resilience by strengthening social protection systems, enhancing targeting, and advancing fiscal decentralization to improve local service delivery.
4. Strengthen critical infrastructure through expanded power generation, increased regional power market participation, protected road maintenance funding, and accelerated implementation of key hydropower, interconnector, and transport corridor projects-investments essential for productivity and employment.

The MEM's Special Topic "Reversing Malawi's Export Decline," highlights the sharp deterioration in export performance over the past decade. Exports remain overly concentrated in tobacco, which still accounts for roughly half of total merchandise exports-and diversification remains limited. Export volumes, product variety, and the number of exporting firms have all declined, while imports have continued to rise.

Structural constraints-including Malawi's landlocked geography, weak infrastructure, macroeconomic instability, and restrictive policy measures such as non-tariff barriers and complex export licensing procedures-have further undermined competitiveness.

Export concentration has increased, and Malawi now has far fewer exporting firms than the regional average-just 3.2 firms per 100,000 people compared to 28 in Africa overall. Exporters face high costs, limited access to finance, and low survival rates. Promising agro-processing value chains remain fragile due to policy unpredictability, infrastructure gaps, and climate shocks-constraining their potential to generate jobs along supply chains.

To reverse the export decline and expand formal employment, the MEM recommends:

• Reducing trade costs through simplified border procedures, removal of non-tariff barriers, and full digitalization of trade systems.
• Ensuring consistent macroeconomic and exchange rate policies, strengthening competition, and reviewing incentive schemes to support investment and firm growth.
• Addressing supply side constraints by investing in energy, transport corridors, digital systems, and export finance, and helping firms meet international standards.

Malawi needs to get the reforms right-and sequence them well to quickly ease pressures on firms, restore confidence, and support the return of exporters. By stabilizing the macroeconomy, enabling private investment, and strengthening the foundations for productivity, Malawi can place the economy on a more resilient and inclusive growth path-one that translates into more and better job opportunities for young people.