Malawian activists are planning a mass protest for Wednesday after talks with the government on political reforms that could see the United States and Britain resume aid to the country became deadlocked.

Civil rights groups want President Bingu wa Mutharika to explain his personal wealth, address foreign exchange and fuel shortages and reconcile with Britain, which froze aid after a diplomatic spat.

"Government has not met any demand in our petition and all they want us to do is to call off the demonstrations," said Billy Mayaya on behalf of the rights' groups.

Officials from the ruling party and rights groups were trying to reach a compromise to avert a possible protest after demonstrations last month left 19 protesters dead.

A senior presidential aide at State House confirmed negotiations had reached deadlock but declined to comment on the government's next step.

Mutharika has presided over six years of phenomenal economic growth which is teetering on the brink of collapse because of a diplomatic dispute with Britain, Malawi's biggest donor, over a leaked embassy cable that referred to him as "autocratic and intolerant of criticism".

The cable led to the expulsion of Britain's ambassador to Lilongwe, and in response, Britain expelled Malawi's representative in London and suspended budget support worth millions of dollars.

The freeze has left a yawning hole in the budget of a country reliant on handouts for 40 percent of its revenues, and intensified a dollar shortage that this week saw the government devalue its kwacha currency by 10 percent to 165 against the U.S. dollar.

The dollar crunch has also pushed up fuel prices and exacerbated an already chronic energy shortage, making a government economic growth forecast of 6.6 percent for this year look increasingly unrealistic.