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Quick Facts
- Population:
- GDP (PPP):
- $414.4 billion
- 7.2% growth
- 4.4% 5-year compound annual growth
- $14,670 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Malaysia’s economic freedom score is 66.4, making its economy the 53rd freest in the 2012 Index. Its score is 0.1 point higher than last year, reflecting a gain in business freedom partially offset by declining effectiveness in the control of government spending. Malaysia is ranked 9th out of 41 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.
The Malaysian economy has shown a moderate degree of resilience in the face of a challenging global economic environment. Reform efforts have continued in many of the four pillars of economic freedom. The overall regulatory framework is now more efficient, and business procedures have been streamlined. Implementation of policies intended to support open markets and encourage a vibrant private sector is enhancing investment flows and improving the vitality of entrepreneurship.
In contrast to its performance in other areas, Malaysia has lagged in promoting the effective rule of law and enhancing and modernizing the legal framework. The judicial system remains vulnerable to political interference, and property rights are not strongly protected. Lingering corruption further undermines freedom and hampers long-term institutional competitiveness. Government spending has been expanding in recent years, threatening overall economic efficiency.
Background
Malaysia, an ethnically and religiously diverse constitutional monarchy, became independent in 1957 and has been ruled continuously since then by the United Malays National Organization. Huge electoral inroads made by the People’s Justice Party–led opposition coalition in March 2008 were largely the result of popular dissatisfaction with pro-Malay affirmative action programs and corruption. In 2011, the government cracked down heavily on protests by a coalition of civil society groups calling for electoral reform. Malaysia has slowly liberalized its economy, but government ownership stakes in such key sectors as banking, media, automobiles, and airlines remain high. Malaysia is a leading exporter of electronics and information technology products, and its industries range from agricultural goods to automobiles.
Private property is protected, but the judiciary is subject to political influence. Corporate lawsuits take over a year to adjudicate, and many contracts include a mandatory arbitration clause. Despite plans to ratify the World Intellectual Property Organization Copyright Treaty and Performances and Phonograms Treaty, complaints about lax enforcement of intellectual property rights persist. Corruption remains a cause for concern.
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, and the overall tax burden amounts to 15.7 percent of total domestic income. Government spending has increased to a level equivalent to 30 percent of total domestic output. The budget balance has been in deficit, and public debt has climbed to over 50 percent of GDP.
With no minimum capital required for establishing a company, it takes only four procedures and six days on average to start a business. Steps to introduce greater efficiency have been implemented in recent years, and licensing requirements are now considerably less time-consuming and bureaucratic. Labor regulations have become more modern and flexible. Inflation has been under control.
The trade weighted average tariff rate is modest at 3.1 percent, but non-tariff barriers increase the cost of trade. Foreign investment is officially welcome, and efforts to attract more flows have been made, but government interference and a lack of transparency deter dynamic growth in new investment. Despite the challenging external environment, the banking sector remains stable, although extensive regulations undermine competitiveness.