With a population of 13 million, of which 85% live in rural areas, and with a Gross National Product of US $210 per capita, Malawi is one of the world’s poorest countries and has one of the most unequal distributions of wealth in the world.

A limited and deteriorating natural resources base and a highly dependent population (half the population is under 15 years of age), have presented the country with major challenges that inhibit its ability to participate in the new global economy. Recent policy reforms have triggered increases in the amount and diversification of agricultural production. However, reliance on rain-dependent primary crops such as tobacco, tea and sugar, with volatile prices and uncertain long-term prospects leaves Malawi’s economy vulnerable. As a landlocked country, Malawi depends on regional peace and stability for transport access. Characterised by low savings and investment rates, unstable fiscal balances and an unhealthy donor dependency (the aid budget represents 38% of the GNP), the country’s fiscal situation is fragile.

External debt service accounts for some 20% of current expenditures - a substantial burden on the enormous development agenda of the country articulated in the country's "Vision 2020". Malawi is now one of the 41 countries eligible for inclusive in the HIPC debt relief programme based on the new conditions refined at the G7 Cologne meeting mid 1999. The Government has been assessing the opportunity for Malawi to engage in the HIPC debt relief process. Accordingly, the Ministry of Finance has just completed a debt portfolio review and they will soon conduct a debt sustainability analysis. In addition the Government has confirmed that it will pursue the idea of establishing a debt relief trust fund as discussed during the last Malawi Donors Consultative Group (CG) meeting held in December 1998 in Lilongwe. The UN System, including the World Bank (WB), advocated for this mechanism during the CG meeting so that this could finance basic social services.

In Malawi, poverty is widespread and prevalent both in rural and urban areas, though hardest hit are the rural populations and particularly the women of the rural areas. It is estimated that 60% of the population live under the poverty line of US$40 per adult per annum. The causes of this immense poverty are the high population density, unequal access to productive resources and control by a small elite group of the management of the economy.

Poverty, human deprivation and suffering are aggravated by the high and increasing prevalence of HIV/AIDS, and Malawi's health indicators are among the worst in the world. The rate of HIV infection is one of the highest in the world. On average, 267 people are infected every day and 139 people die daily from AIDS-related diseases. HIV/AIDS is now the leading cause of death in the most productive age group (20-40), and 30% of the Ministry of Health’s curative budget is now spent for AIDS patients. Five out of every six young people infected are female.

The National AIDS Control Programme estimates that at the end of 1997 nearly 1 million Malawians were HIV positive. The increasing number of AIDS deaths among productive adults in the public and private sector is draining the country’s capacity and adversely affecting development efforts. The epidemic is killing more adults than any war yet the response to the epidemic has yet to reach the level of commitment one would expect during a war.

“The majority of the people are fatalistic in their view about the prevention of the spread of the epidemic. The Government and community response to the epidemic has not been commensurate with the severity of the epidemic. Although the Government agrees that the magnitude of the epidemic and its impact on the economy demands radical, unpopular and possibly unorthodox measures, there is to date, not a well-defined policy direction at the highest level of leadership and civil society” (Right Hon. J.C. Malewezi, Vice President of the Republic of Malawi).

The number of children orphaned because of the AIDS epidemic is increasing alarmingly.  In 1991 the National AIDS Control Programme and the National Task Force on Orphans estimated that there would be more than 300,000 AIDS orphans by the year 2000. Based on recent estimates of HIV/AIDS infections, new projections are much higher, with 980,708 orphans in 1995, 1,230,947 in 2000, 1,429,952 in 2005 and 1,565,818 in 2010. For many children and families, the onset of AIDS signals the beginning of a transition from poverty to complete destitution.

Although there have been little effort in the past, the Government has launched significant initiatives in the fight against AIDS, taking measures that demonstrate commitment at the highest level, including the establishment in 1998 of the Cabinet Committee on HIV/AIDS. The government initiated a National AIDS strategic planning exercise in 1997 with the support of UNAIDS and the donor technical group on HIV/AIDS. The exercise was completed in 1999. This consultative exercise was designed to strengthen the capacity of communities to discuss and effectively respond to the epidemic, with the aim of breaking the ‘conspiracy of silence’ surrounding the HIV/AIDS epidemic. The strategic planning exercise also aimed at developing a National Strategic Framework for the period 2000-2004. The State President of Malawi launched the National Strategic Plan on HIV/AIDS on 29 October 1999 in Blantyre City