Malawi's is an agricultural economy which, in recent years, has been troubled by drought and financial instability. It is dependent for most of its income on the export sales of tobacco (60%), and tea and sugar (20%). Other agricultural products include peanuts, coffee, and wood products. As a result of the 1992 drought, GDP declined by 7.9% after averaging 4.5% annual growth in 1989–91, and an impressive 6.7% annual growth rate during the 1970s. Growth averaged an annual 3.7% from 1988 to 1998. It was 1.7% in 2001. International aid donors, concerned about human rights abuses in Malawi, have tied future support to human rights reforms. Beginning in 2000, the country was the recipient of $1 billion in debt service relief under the IMF/World Bank Heavily Indebted Poor Countries Initiative.
Manufacturing is small-scale, directed mainly to the processing of export crops. In 2000, the agricultural sector employed an estimated 86% of Malawi's population and accounted for about 40% of GDP. Over 90% of the population lives in rural areas. The sector experienced severe droughts in 1979–81, 1992, 1994, and 2001–02. Periods of flooding also plague Malawi, as happened in 2003. Production of maize, the main food staple, during the 2001/02 growing season was 1.6 million metric tons, approximately 600,000 short of estimated domestic demand. The World Bank approved a $50-million assistance package for drought recovery in Malawi in November 2002. Other environmental challenges include deforestation and erosion. Recent economic reforms have led to the market pricing in the agricultural sector. The fledgling mining sector in Malawi is slowly growing with the support of international financing.
The government continues to privatize the ownership of public enterprises although the wealth of the country resides in the hands of a small elite. By 2000, over one-third of the more than 90 state-owned enterprises had been sold to private hands.