2017 Index of Economic Freedom

Malaysia

overall score73.8
world rank27
Rule of Law

Property Rights85.3

Government Integrity51.8

Judicial Effectiveness67.3

Government Size

Government Spending78.7

Tax Burden85.3

Fiscal Health76.5

Regulatory Efficiency

Business Freedom90.8

Labor Freedom73.1

Monetary Freedom85.3

Open Markets

Trade Freedom81.2

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 30.8 million
  • GDP (PPP):
    • $815.6 billion
    • 5.0% growth
    • 5.3% 5-year compound annual growth
    • $26,315 per capita
  • Unemployment:
    • 2.9%
  • Inflation (CPI):
    • 2.1%
  • FDI Inflow:
    • $11.1 billion
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Ongoing economic reforms have enhanced Malaysia’s competitiveness. The financial sector has undergone regulatory adjustments that include easing the limits on foreign ownership in financial subsectors. Numerous domestic equity requirements that restricted foreign investment have been eliminated. The trade regime is relatively open, although nontariff barriers that limit overall trade freedom are still in place. There is no mandated minimum wage, and labor regulations are not rigid.

Improving fiscal health continues to be a priority, but progress has been slow. The judicial system’s vulnerability to political influence poses a significant challenge to the effective and even-handed rule of law and undermines government integrity.

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Background

The United Malays National Organization (UMNO) has ruled the ethnically and religiously diverse constitutional monarchy of Malaysia since independence in 1957. In 2013 elections, the UMNO-led coalition retained power but for the first time failed to win more than 50 percent of the popular vote. Since 2015, Prime Minister Najib Razak has been embroiled in a scandal involving the misappropriation of $3.5 billion in state funds. Despite this, Najib’s UNMO won two special parliamentary elections in June 2016. The government maintains investments in such key sectors as banking, media, automobiles, and airlines. Malaysia is a leading exporter of electronics and information-technology products.

Rule of LawView Methodology

Property Rights 85.3 Create a Graph using this measurement

Government Integrity 51.8 Create a Graph using this measurement

Judicial Effectiveness 67.3 Create a Graph using this measurement

Malaysian courts protect real property ownership rights, but protection of intellectual property rights is weaker. Judicial independence is marred by heavy executive influence, and arbitrary or politically motivated verdicts are common. Favoritism and blurred distinctions between public and private enterprises create conditions conducive to corruption. A multibillion-dollar corruption scandal involving the prime minister has dominated the headlines during the past year.

Government SizeView Methodology

The top individual income tax rate has been raised to 28 percent. The top corporate tax rate has been cut to 24 percent. Other taxes include a capital gains tax. The overall tax burden equals 14.8 percent of total domestic income. Government spending has amounted to 25.8 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.2 percent of GDP. Public debt is equivalent to 57.4 percent of GDP.

Regulatory EfficiencyView Methodology

A new Companies Act, which was enacted in 2016 to facilitate the establishment and operations of domestic firms, is expected to take effect in 2017. There is no national minimum wage, and restrictions on work hours are relatively flexible. The International Monetary Fund has praised the government’s bold multi-year drive to reduce costly and untargeted subsidies (for example, on electricity and fuel).

Open MarketsView Methodology

Trade is extremely important to Malaysia’s economy; the value of exports and imports taken together equals 134 percent of GDP. The average applied tariff rate is 4.4 percent. Investment in some sectors is restricted, and state-owned enterprises distort the economy. The financial sector continues to grow, and its competitiveness is increasing. Supervision of banking has been strengthened, and measures to liberalize capital markets have progressed.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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