Malawi is one of the early adopters of structural adjustment reforms in which various macroeconomic policies have been implemented since 1981. In spite of the many reforms Malawi remains one of the poorest nations and about 65 percent of the population live below the poverty line. This study exploits recent household panel data between 1998 and 2002 to infer macroeconomic policies that can effectively reduce poverty. The results reveal that macroeconomic policies that facilitate the redistribution of land, creation of salaried employment opportunities and accumulation of assets have the greatest potential in reducing poverty in rural Malawi. Although, trade policies have been actively pursued in Malawi, the rural poor have not benefited from trade liberalisation and falling agricultural prices reduced the probability of the poor to escape poverty.