Mrs Banda said she was happy to “offload” the presidential perks, adding: “I can well use private airlines. I am already used to hitchhiking.”
It means that the 62-year-old head of state – the second woman to hold the position in Africa – will fly to the Queen’s Jubilee celebrations in London this weekend with British Airways.
Andrew Mitchell, the UK International Development Secretary who is currently visiting Malawi, delivered a £33m cash injection for Mrs Banda’s government.
He said the move was a sign of the “seriousness Mrs Banda is applying to overturn bad decisions taken under the previous government”.
The former vice-president in Bingu wa Mutharika’s government, she stepped into the presidency in April when he suffered a heart attack. The jet had annual running costs of £220,000.
Since then, she has sacked former members of the “old guard” in the cabinet and security services, brought back Malawi’s old flag and pledged to lift the country’s ban on homosexuality.
Most recently, she followed long-standing International Monetary Fund advice to devalueMalawi’s currency by a third.
The move caused panic buying and a sharp rise in the prices of basic foods and fuel.
But her decisions have seen donors including Britain, the EU, Germany, Norway and the World Bank, re-establish warm relations with Malawi.
Mr Mitchell announced that Britain, Malawi’s biggest bilateral aid donor, would send a Bank of England expert to help stabilise the currency, and handed £23 million to the Finance Ministry.
He said that Mrs Banda had sent a signal of her intent and her priorities at a time of financial austerity both in Malawi and Britain.
“The importance of an African leader giving up the jets and Mercedes is iconic,” he said.
“There are millions of people in need of drugs. I went to a hospital and saw people who were clearly ill queueing for drugs that were not there.
“We are making £10 million available for Malawi to stock up, and extra funding for agriculture, education and health to reinforce the work of this very good president.”
Steve Sharra, a prominent Malawian blogger, said that Mrs Banda’s actions were broadly welcomed by her countrymen.
Critics joked, however, that Malawi was transforming from a “God-fearing country” to a “donor-fearing country”.
“The currency devaluation has been hard but I think most people understood why it had to happen and she is enjoying extraordinary amounts of goodwill and trust among Malawians,” he said.
“All presidents start out well and we will have to see how she behaves after she is re-elected but for me, what’s important is that she consults before taking decisions. With President Mutharika, it was his way or the highway.”
The former president’s profligacy provoked a Whitehall decision to suspend aid to Malawi last year.
In 2010, he was accused of using £2 million of public money to build new roads to travel in comfort to his second wedding.
The same year, he unveiled a multi-million dollar Taj Mahal-style mausoleum in memory of his late wife Ethel.
Mr Mutharika had defended the purchase of the jet as a “must” for a national leader in 2009.
“The jet that I purchased is not mine. It belongs to the nation,” he claimed. “It will be used by 10, 11 other people coming after me. So that’s an asset.”