2013 Index of Economic Freedom

Malaysia

overall score66.1
world rank56
Rule of Law

Property Rights55.0

Freedom From Corruption43.0

Limited Government

Government Spending73.5

Fiscal Freedom85.1

Regulatory Efficiency

Business Freedom79.9

Labor Freedom72.3

Monetary Freedom79.8

Open Markets

Trade Freedom77.0

Investment Freedom45.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 28.7 million
  • GDP (PPP):
    • $447.3 billion
    • 5.1% growth
    • 4.3% 5-year compound annual growth
    • $15,568 per capita
  • Unemployment:
    • 3.1%
  • Inflation (CPI):
    • 3.2%
  • FDI Inflow:
    • $12.0 billion
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Malaysia’s economic freedom score is 66.1, making its economy the 56th freest in the 2013 Index. Its score is 0.3 point lower than last year, with an improvement in property rights outweighed by a significant decline in labor freedom. Malaysia is ranked 9th out of 41 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.

Despite the challenging global economic environment, the Malaysian economy has recorded growth rates averaging about 4.5 percent per year over the past five years. Pressing ahead with its Economic Transformation Program, the government has undertaken structural reforms to enhance the entrepreneurial environment and legal transparency. Management of public finance has been relatively prudent, with gradual reductions in various government subsidies in recent years.

Despite ongoing reform efforts, Malaysia’s overall economic freedom continues to be constrained by institutional shortcomings that damage prospects for more vibrant long-term economic expansion. The country’s perceived level of corruption has increased, and there is no sign of effective anti-corruption measures, The judicial system remains vulnerable to political interference.

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Background

Malaysia, an ethnically and religiously diverse constitutional monarchy, became independent in 1957 and has been ruled continuously by the United Malays National Organization. Huge electoral inroads made in March 2008 by the opposition coalition, led by the People’s Justice Party, were largely the result of popular dissatisfaction with pro-Malay affirmative action programs and corruption. In 2011 and 2012, the government cracked down heavily on peaceful protests by civil society groups calling for electoral reform. Malaysia has slowly liberalized its economy, but government ownership remains prevalent in such key sectors as banking, media, automobiles, and airlines. Malaysia is a leading exporter of electronics and information technology products, and its industries range from agricultural goods to automobiles.

Rule of LawView Methodology

Property Rights 55.0 Create a Graph using this measurement

Freedom From Corruption 43.0 Create a Graph using this measurement

Private property is protected, but the judiciary is subject to political influence. Corporate lawsuits face lengthy delays. In late 2011, the parliament amended the Copyright Act to strengthen intellectual property protection. Malaysia intends to accede to the World Intellectual Property Organization Copyright Treaty and Performances and Phonograms Treaty. Corruption is a continuing concern.

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 is equal to 13.8 percent of total domestic income. Government spending is equivalent to 29.7 percent of GDP. Large government spending projects have contributed to a budget deficit, and public debt amounts to about 53 percent of GDP.

Regulatory EfficiencyView Methodology

Steps to introduce greater regulatory efficiency have been implemented in recent years, and licensing requirements have become considerably less time-consuming and bureaucratic. With no minimum capital required, it takes only three procedures and six days on average to start a business. Labor market rigidity persists, hampering dynamic job growth. Monetary stability has been relatively well maintained.

Open MarketsView Methodology

The trade-weighted average tariff rate is 4 percent, and non-tariff barriers add to the cost of trade. Despite efforts to attract foreign investment, government interference and a lack of transparency deter dynamic growth in investment flows. The financial sector remains stable. Measures to open the banking sector to greater competition have been made, but progress has been slow.

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 Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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