The United States has restored a $350 million aid programme to overhaul Malawi's decrepit electricity grid in recognition of the "sound economic policy" introduced since the death of President Bingu wa Mutharika in April.
The U.S. Millennium Challenge Corporation (MCC) froze the donor agreement in July last year after 20 anti-Mutharika protesters were killed in a police crackdown in the impoverished southern African nation.
The suspension, which coincided with aid freezes from other governments including Britain, Malawi's biggest donor, exacerbated an already acute dollar shortage, sending the economy into a spiral.
However, the MCC said on Friday the change of direction on human rights and economics under new President Joyce Banda - southern Africa's first female head of state - meant the programme should resume.
"The government of Malawi has also demonstrated a commitment to providing accountability for the violent police response to demonstrations in July 2011," it said in a statement.
"These steps, and the resumption of sound economic policy, restore MCC's confidence in Malawi as a compact partner."
Under Banda, the kwacha's peg against the dollar has been loosened to allow a devaluation of more than 30 percent, and donors have pledged nearly $500 million in aid for this financial year, more than double 12 months ago.
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