2014 Index of Economic Freedom

Malaysia

overall score69.6
world rank37
Rule of Law

Property Rights55.0

Freedom From Corruption44.3

Limited Government

Government Spending75.6

Fiscal Freedom84.6

Regulatory Efficiency

Business Freedom85.6

Labor Freedom78.5

Monetary Freedom81.0

Open Markets

Trade Freedom76.4

Investment Freedom55.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 29.5 million
  • GDP (PPP):
    • $498.5 billion
    • 5.6% growth
    • 4.2% 5-year compound annual growth
    • $16,922 per capita
  • Unemployment:
    • 3.0%
  • Inflation (CPI):
    • 1.7%
  • FDI Inflow:
    • $10.1 billion
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Malaysia’s economic freedom score is 69.6, making its economy the 37th freest in the 2014 Index. Its score is 3.5 points higher than last year, with impressive improvements in seven of the 10 economic freedoms including financial freedom, investment freedom, labor freedom, and business freedom. Malaysia is ranked 9th out of 42 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.

Over the 20-year history of the Index, Malaysia’s economic freedom score has declined by 2.3 points. Declines have been recorded in five of the 10 economic freedoms, including property rights, freedom from corruption, and investment freedom. Most notably, freedom from corruption has declined by over 25 points, undermining the rule of law. Over the past two decades, Malaysia’s economy has mostly been rated “moderately free.”

Registering one of the 10 best score improvements in the 2014 Index, Malaysia has charted an upward trajectory of economic freedom for the past five years. It has undertaken wide-ranging reforms to address various structural weaknesses and improve competitiveness. Recent reforms have put greater emphasis on improving regulatory efficiency, enhancing regional competitiveness, and modernizing the financial sector.

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Background

The ethnically and religiously diverse constitutional monarchy of Malaysia has been ruled by the United Malays National Organization since independence in 1957, but dissatisfaction with pro-Malay affirmative-action programs and corruption generated important opposition gains in the March 2008 elections. The trend continued with the 2013 elections, in which the UMNO-led coalition retained power but failed for the first time to win more than 50 percent of the popular vote. Despite significant steps toward liberalizing the economy, 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; other industries include agricultural products and automobiles.

Rule of LawView Methodology

Property Rights 55.0 Create a Graph using this measurement

Freedom From Corruption 44.3 Create a Graph using this measurement

Several high-level government officials and law enforcement bodies figured in corruption scandals in the past year, and the government has taken steps to address the problem. Judicial independence is undermined by extensive executive influence, and arbitrary or politically motivated verdicts can occur. Private property is protected effectively. Corporate lawsuits face lengthy delays.

Limited GovernmentView Methodology

The top individual income tax rate is 26 percent, and the top corporate tax rate is 25 percent. Other taxes include a capital gains tax. The overall tax burden equals 15.3 percent of the domestic economy. Government spending is equivalent to 29 percent of GDP, and public debt has increased slightly to about 56 percent of the domestic economy. In 2013, the government moved to reduce fuel subsidies in order to narrow budget imbalances.

Regulatory EfficiencyView Methodology

Steps to introduce greater regulatory efficiency have been implemented in recent years. It takes three procedures and six days on average to incorporate a business, and no minimum capital is required. Despite some improvement, labor market rigidity persists. The government reduced some fuel subsidies in 2013, but numerous other economically distortionary subsidies and price controls remain in place.

Open MarketsView Methodology

Malaysia’s average tariff rate is 4.3 percent, and non-tariff barriers impede imports of agricultural goods and automobiles. The foreign investment regime has been liberalized, but the government still screens manufacturing projects. The financial sector remains stable, offering a comprehensive array of financial services. Measures to open the banking sector to greater competition have been implemented.

Country's Score Over Time

Bar Graph of Malaysia  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Malaysia  to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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