2018 Index of Economic Freedom

Malaysia

overall score74.5
world rank22
Rule of Law

Property Rights83.8

Government Integrity54.8

Judicial Effectiveness65.2

Government Size

Government Spending81.3

Tax Burden85.6

Fiscal Health80.7

Regulatory Efficiency

Business Freedom83.9

Labor Freedom75.8

Monetary Freedom85.6

Open Markets

Trade Freedom87.4

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 31.7 million
  • GDP (PPP):
    • $863.3 billion
    • 5.0% growth
    • 5.1% 5-year compound annual growth
    • $27,267 per capita
  • Unemployment:
    • 3.3%
  • Inflation (CPI):
    • 2.1%
  • FDI Inflow:
    • $9.9 billion
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Malaysia’s economic freedom score is 74.5, making its economy the 22nd freest in the 2018 Index. Its overall score has increased by 0.7 point, with higher scores for trade freedom and fiscal health offsetting a decline in the business freedom indicator. Malaysia is ranked 6th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Malaysia has become an upper-middle-income country that hopes to attract additional investments in value-added production of high technology, knowledge-based goods, and services. To enhance competitiveness, the government has liberalized some services subsectors and adopted fiscal reforms to achieve a balanced budget by 2020 through tax reform and reduced subsidies. 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.

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Background

The United Malays National Organization has ruled the constitutional monarchy of Malaysia since independence from the U.K. in 1957. In the 2013 election, the UMNO-led coalition retained power but for the first time failed to win more than 50 percent of the popular vote. Although Prime Minister Najib Razak has been embroiled in a scandal involving the misappropriation of $3.5 billion in state funds since 2015, UNMO won two special parliamentary elections in 2016. During his 1981–2003 tenure, former Prime Minister Mahathir bin Mohamad diversified the economy from dependence on exports of raw materials to reliance on manufacturing, services, and tourism. Malaysia became a leading exporter of electronics and information-technology products. Najib has continued these pro-business policies.

Rule of LawView Methodology

Property Rights 83.8 Create a Graph using this measurement

Government Integrity 54.8 Create a Graph using this measurement

Judicial Effectiveness 65.2 Create a Graph using this measurement

Real property ownership rights are protected, but protection of intellectual property rights is weaker. Judicial independence is marred by heavy executive influence. Arbitrary or politically motivated verdicts are common. A majority of Malaysians think that widespread corruption and cronyism within the ruling coalition and in government institutions have grown worse over the past year.

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 24.9 percent of total output (GDP), and budget deficits have averaged 2.8 percent of GDP. Public debt is equivalent to 56.3 percent of GDP.

Regulatory EfficiencyView Methodology

Malaysia has instituted a new form of business registration that makes starting a business more complicated, but the relatively flexible labor market operates at nearly full employment. The government has announced plans to continue the move toward a uniform national minimum wage. Subsidies for electricity and cooking oil were sharply reduced in 2017.

Open MarketsView Methodology

Trade is extremely important to Malaysia’s economy; the combined value of exports and imports equals 128 percent of GDP. The average applied tariff rate is 1.3 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The financial sector remains stable. Measures to open the banking sector to greater competition have been adopted, but progress has been slow.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.4
2Singapore88.80.2
3New Zealand84.20.5
4Australia80.9-0.1
5Taiwan76.60.1
6Malaysia 74.50.7
7South Korea73.8-0.5
8Japan72.32.7
9Macau70.90.2
10Vanuatu69.52.1
11Kazakhstan69.10.1
12Thailand 67.10.9
13Philippines65-0.6
14Azerbaijan64.30.7
15Indonesia64.22.3
16Brunei Darussalam64.2-5.6
17Tonga63.10.1
18Kyrgyz Republic 62.81.7
19Fiji62-1.4
20Bhutan61.83.4
21Samoa61.53.1
22Cambodia58.7-0.8
23Tajikistan58.30.1
24China57.80.4
25Sri Lanka57.80.4
26Solomon Islands57.52.5
27Mongolia55.70.9
28Papua New Guinea55.74.8
29Bangladesh 55.10.1
30India54.51.9
31Pakistan 54.41.6
32Nepal54.1-1.0
33Burma53.91.4
34Laos53.6-0.4
35Vietnam53.10.7
36Micronesia52.3-1.8
37Uzbekistan51.5-0.8
38Afghanistan51.32.4
39Maldives51.10.8
40Kiribati50.8-0.1
41Timor-Leste48.11.8
42Turkmenistan47.1-0.3
43North Korea5.80.9
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