2019 Index of Economic Freedom

Malaysia

overall score74.0
world rank22
Rule of Law

Property Rights84.1

Government Integrity55.4

Judicial Effectiveness68.2

Government Size

Government Spending83.2

Tax Burden85.6

Fiscal Health82.4

Regulatory Efficiency

Business Freedom83.9

Labor Freedom74.4

Monetary Freedom78.6

Open Markets

Trade Freedom82.0

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 32.1 million
  • GDP (PPP):
    • $930.8 billion
    • 5.9% growth
    • 5.2% 5-year compound annual growth
    • $29,041 per capita
  • Unemployment:
    • 3.4%
  • Inflation (CPI):
    • 3.8%
  • FDI Inflow:
    • $9.5 billion

Malaysia’s economic freedom score is 74.0, making its economy the 22nd freest in the 2019 Index. Its overall score has decreased by 0.5 point, with declines in scores for monetary freedom and trade freedom exceeding improvements in judicial effectiveness, government spending, and fiscal health. Malaysia is ranked 6th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

The trade regime is relatively open. There is no mandated minimum wage, and labor regulations are not rigid. The judicial system’s vulnerability to political influence is a significant challenge to the rule of law. Government priorities in 2019 include consolidating high public debt and attracting additional investments in the production of high-technology and knowledge-based goods and services that have made Malaysia an upper-middle-income country. To enhance competitiveness, the government plans further liberalization of some services subsectors, tax reform, and subsidy reductions.

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Background

In 2018 elections, the opposition Alliance for Hope stunned the long-ruling National Front, bringing 93-year-old Prime Minister Mahathir Bin Mohamad back to office for a second time. During his 1981–2003 tenure, Mahathir diversified the economy away from dependence on exports of raw materials and expanded manufacturing, services, and tourism. Running on his economic record, he was able to craft a winning political coalition in the wake of a massive scandal involving the state-run development board. Mahathir has already announced his intent to transfer power to Anwar Ibrahim, a previously imprisoned former deputy prime minister and opposition leader. Malaysia’s top exports include electronics, petroleum, chemicals, and palm oil.

Rule of LawView Methodology

Property Rights 84.1 Create a Graph using this measurement

Government Integrity 55.4 Create a Graph using this measurement

Judicial Effectiveness 68.2 Create a Graph using this measurement

Malaysian courts protect real property ownership rights, but protection of intellectual property rights is weaker. The judiciary is nominally independent but strongly influenced by the executive. Arbitrary or politically motivated verdicts are common. Favoritism and blurred distinctions between public and private enterprises create conditions conducive to corruption. Journalists and opposition politicians have been harassed or prosecuted.

Government SizeView Methodology

The top individual income tax rate is 25 percent; the top corporate tax rate is also 25 percent. Other taxes include a capital gains tax. The overall tax burden equals 13.8 percent of total domestic income. Over the past three years, government spending has amounted to 23.7 percent of the country’s output (GDP), and budget deficits have averaged 2.7 percent of GDP. Public debt is equivalent to 54.2 percent of GDP.

Regulatory EfficiencyView Methodology

Steps to introduce greater regulatory efficiency have been implemented in recent years, but the pace of business reform has slowed. With no minimum capital required, it takes fewer than 10 procedures to start a business. There is no national minimum wage, and restrictions on work hours are relatively flexible. The government has allocated $760 million to subsidize gasoline and diesel prices through the end of 2018.

Open MarketsView Methodology

The combined value of exports and imports is equal to 135.9 percent of GDP. The average applied tariff rate is 4.0 percent. As of June 30, 2018, according to the WTO, Malaysia had 69 nontariff measures in force. Domestic equity requirements that restricted foreign investment have been eliminated. The financial sector has undergone regulatory adjustments that include the easing of limits on foreign ownership in financial subsectors.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.0
2Singapore89.40.6
3New Zealand84.40.2
4Australia80.90.0
5Taiwan77.30.7
6Malaysia 74-0.5
7South Korea72.3-1.5
8Japan72.1-0.2
9Macau710.1
10Thailand 68.31.2
11Indonesia65.81.6
12Kazakhstan65.4-3.7
13Azerbaijan65.41.1
14Brunei Darussalam65.10.9
15Philippines63.8-1.2
16Bhutan62.91.1
17Kyrgyz Republic 62.3-0.5
18Fiji62.20.2
19Samoa62.20.7
20China58.40.6
21Papua New Guinea58.42.7
22Cambodia57.8-0.9
23Tonga57.7-5.4
24Laos57.43.8
25Sri Lanka56.4-1.4
26Vanuatu56.4-13.1
27Bangladesh 55.60.5
28Tajikistan55.6-2.7
29Mongolia55.4-0.3
30Vietnam55.32.2
31India55.20.7
32Pakistan 550.6
33Solomon Islands54.6-2.9
34Nepal53.8-0.3
35Burma53.6-0.3
36Uzbekistan53.31.8
37Maldives53.22.1
38Micronesia51.9-0.4
39Afghanistan51.50.2
40Turkmenistan48.41.3
41Kiribati47.3-3.5
42Timor-Leste44.2-3.9
43North Korea5.90.1
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