2022 Index of Economic Freedom

Malaysia

OVERALL SCORE68.1
WORLD RANK42
Rule of Law

Property Rights65.6

Judicial Effectiveness57.6

Government Integrity53.9

Government Size

Tax Burden83.8

Government Spending82.9

Fiscal Health73.4

Regulatory Efficiency

Business Freedom67.1

Labor Freedom57.0

Monetary Freedom83.6

Open Markets

Trade Freedom82.2

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 32.4 million
  • GDP (PPP):
    • $902.6 billion
    • -5.6% growth
    • 2.7% 5-year compound annual growth
    • $27,402 per capita
  • Unemployment:
    • 4.6%
  • Inflation (CPI):
    • -1.1%
  • FDI Inflow:
    • $3.5 billion

Malaysia’s economic freedom score is 68.1, making its economy the 42nd freest in the 2022 Index. Malaysia is ranked 8th among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Economic growth slowed in Malaysia from 2017 through 2019, turned negative in 2020, and resumed in 2021. The country has recorded a 5.7-point overall loss of economic freedom since 2017 and has fallen from the “Mostly Free” category to the “Moderately Free” category. Government size is well calibrated, and monetary freedom and trade freedom are bright spots, but reforms are needed to upgrade investment and financial freedom. Problems related to government integrity need serious attention.

IMPACT OF COVID-19: As of December 1, 2021, 30,474 deaths had been attributed to the pandemic in Malaysia, and the government’s response to the crisis ranked 46th among the countries included in this Index in terms of its stringency. The economy contracted by 5.6 percent in 2020.

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Background

In the 2018 election, the opposition Pakatan Harapan coalition defeated the long-ruling Barisan Nasional, bringing 94-year-old Prime Minister Mahathir Bin Mohamad back to office for a second time. Running on his economic record, he crafted a winning political coalition in the wake of a massive scandal involving the state-run development board. Former Deputy Prime Minister Anwar Ibrahim was expected to succeed Mahathir, but the coalition fell apart. The result was a political crisis that ended when Mahathir resigned and was replaced by former United Malays National Organisation Deputy Chairman and former Pakatan Harapan member Muhyiddin Yassin. The governing coalition, however, maintains a small majority and is very fragile. Malaysia’s leading exports include consumer electronics, petroleum, chemicals, and palm oil.

Rule of Law

Property Rights 65.6 Create a Graph using this measurement

Judicial Effectiveness 57.6 Create a Graph using this measurement

Government Integrity 53.9 Create a Graph using this measurement

Protection of property rights is strong, and the property registration and titling system is reliable. Judicial independence is often compromised by extensive executive influence. Although hundreds of public officials were arrested for corruption and bribery in 2019 and 2020, the perceived special treatment accorded to a former prime minister and his wife in 2020 on charges related to the multibillion-dollar 1Malaysia Development Berhad (1MDB) embezzlement scandal stoked public outrage.

Government Size

The top individual income tax rate is 30 percent, and the top corporate tax rate is 24 percent. The overall tax burden equals 12.0 percent of total domestic income. Government spending has amounted to 23.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.3 percent of GDP. Public debt is equivalent to 67.5 percent of GDP.

Regulatory Efficiency

Incorporation requirements have been simplified under the Companies Act of 2016. In 2018, the government noted the need to “establish an accountability mechanism for the implementation of regulatory reviews,” but little progress has been made. Until the advent of COVID-19, the economy was typically operating at or near full employment. The government continues to target its fuel subsidy program narrowly and efficiently.

Open Markets

Malaysia has 15 preferential trade agreements in force. The trade-weighted average tariff rate is 3.9 percent, and 74 nontariff measures are in effect. Foreign investment is officially welcome, and efforts to attract more flows have been made, but a lack of transparency may deter dynamic growth in new investment. Despite the challenging external environment, the banking sector remains stable.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore84.4-5.3
2New Zealand80.6-3.3
3Taiwan80.11.5
4Australia77.7-4.7
5South Korea74.60.6
6Japan69.9-4.2
7Samoa68.36.4
8Malaysia68.1-6.3
9Brunei Darussalam64.8-1.8
10Indonesia64.4-2.5
11Kazakhstan64.4-6.7
12Mongolia63.91.5
13Thailand63.2-6.5
14Vanuatu62.92.4
15Philippines61.1-3.0
16Micronesia6110.6
17Tonga60.83.3
18Vietnam60.6-1.1
19Bhutan59.31.0
20Kiribati59.214.8
21Cambodia57.1-0.2
22Solomon Islands56.50.0
23Fiji56.4-5.8
24Kyrgyz Republic55.8-7.9
25Uzbekistan55.7-2.6
26Papua New Guinea54.6-4.3
27India53.9-2.6
28Sri Lanka53.3-2.4
29Bangladesh52.7-3.8
30Tajikistan49.7-5.5
31Nepal49.7-1.0
32Burma49.6-5.6
33Laos49.2-4.7
34Pakistan48.8-2.9
35China48-10.4
36Maldives47.3-7.9
37Timor-Leste46.31.6
38Turkmenistan46.2-1.2
39North Korea3-2.2
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