One of the least developed countries in the world, Malawi remains fundamentally dependent on international aid, of which it receives about US$400 million annually. Attempts to turn its economy towards greater productivity and self-sufficiency face heavy obstacles at almost every level. The World Bank and the International Monetary Fund (IMF) are working with the Malawian government to improve economic growth through a program of privatization and other reforms. But progress will be difficult, due to a variety of problems that plague the country, including inadequate infrastructure and Malawi's dependence on fuel sources such as coal and firewood.
An overwhelmingly agrarian (farm-based) nation, at 44 people per square mile Malawi is also one Africa's most densely populated countries, and pressure to use available land is intense. This has not only led to serious deforestation as new land has been cleared for cultivation, but ever greater subdivision of existing farming plots. In 1986-87 the World Bank calculated 55 percent of rural households survived on less than 1 hectare of land; by 1993, estimates put this number at 78 percent. The consequences have included decreasing incomes and long-term environmental degradation. Since most of Malawi's agricultural income comes from its independent smallholders (individual farmers), this poses a serious problem.
Over-dependence on agriculture also leaves Malawi exposed to the region's erratic rainfall pattern, as well as to fluctuating world markets. Malawi's primary cash crop is tobacco, and without diversification, it will continue to be exposed to changes in the world tobacco market. Growth has therefore been irregular as Malawi's economic fortunes have bounced up and down. Although hitting annual GDP growth levels as high as 10 percent (1995), long-term growth has been considerably slower, averaging 3 percent between 1980 and 2000. Disciplined budget planning is difficult, and the resulting economic instability deters foreign and private-sector investment. Further, the country faces a substantial foreign debt , which continues to hold back efforts at prioritizing infrastructure improvements that are required for Malawi to achieve the 6 percent growth that, according to World Bank estimates, is necessary if poverty levels are to be reduced.