The analysis of poverty and inequality in the case of Malaysia

Malaysia is one of the unique countries as it is a multi-ethnic, multi-religion and multi-

cultural in nature. Even though it is a multi-religious country, the majority of the people are
Muslims and the official religion is Islam which makes Malaysia can be considered as Muslim
country. The discussion of poverty and inequality in Malaysia should be started with the
economic history as there are several events that leads to the current condition of Malaysia.
Some studies use the approach of looking Malaysian economic history using major event which
is colonial period and post-independence era (Siddiqui, 2012; Yazid, 2014). This paper only
focuses the poverty and inequality trend starting from the implementation of New Economic
Policy (NEP).
Poverty in Malaysia is relatively low in term of numbers as the trend shows that the
latest data of poverty in 2016 is only 0.4% as compared to 49.3% in 1970 (refer figure 1.). This
show a beautiful reduction trend of poverty in Malaysia as it somehow reflects the success of
government in eradicating poverty throughout three decades. This poverty rate figure is based
on the Malaysia definition of poverty which is a household that earns below national Poverty
Line Income (PLI) RM 980 monthly. However, many criticisms about the current Malaysia
PLI are unrealistic as it remains unchanged for the past three decades. Alston1 (as cited in
Dzulkifly, 2019) mentioned that the current PLI is unrealistic as earning RM 980 for a family
of four is only relevant during 1970s as it is inconsistent with the increasing cost of living. His
statement is supported by Khazanah Research Institute (2019) that the current Malaysia PLI is
still lower even it is adjusted with CPI. There is a need to adjust the Malaysia Poverty Line
Income as it is considered irrelevant these days (Khalid, 2019; Anwar Ibrahim, as cited in Fong,
2019).
His statement however is not really accepted by the Ministry of Economics Affairs as
it is being said that his statement is baseless (Azmin, as cited in Habibu, 2019). In reality, it is
clear that the approach of poverty line income should be evolved as it is a unidimensional
approach which is only focuses on income. According to Azmin Ali (2019), “Multidimensional
Poverty Index (MPI) has been established to measure a wider scope of deprivation beyond the
income dimension as currently practiced”. Malaysia has started to use a wider view of poverty
by introducing MPI as a complement to PLI which is more precise as it also looks towards

1
Special Rapporteur on Extreme Poverty and Human Rights from United Nation, Prof. Philip Alston
education, health, living standard and income based on mean monthly income (Economic
Planning Unit, 2015).
Malaysia is basically had shift his focus from focusing on absolute poverty into relative
poverty as Malaysia is moving towards developed country. Staring 9th Malaysia Plan, Malaysia
has start to introduce the new term to see people in term of level of income which is consist of
Bottom 40% of income (B40), Middle 40% (M40), and Top 20% (T20). The introduction of
this income category somehow make government ignore the fact that the absolute poverty is
still exist. The main focus of Malaysia now is more towards eliminating the wide gap of
inequality in Malaysia. The inequality pattern for the past few years has widen really bad as
the T20 median income increase significantly as the B40 median income somehow increase
really slow (see Figure 2). Even if the comparison is made between ethnicity, the trend of
income gap is also showing an increasing trend. Although Malaysia is dominated by Malay,
Malays income are basically the lowest among the other two races which is Chinese and India.
The inequality of Malaysia can be seen to be decrease if Gini Coefficient is being used
to measure income inequality (see Figure 2). Malaysia has achieved Gini coefficient of 0.399
in 2016 compared to around 0.5 in the 70s and 80s. Shared Prosperity Vision 2030 aims to
achieve Gini coefficient of 0.34 by 2030 to somehow decrease the inequality gap in Malaysia.
Besides that, Malaysia have a very ambitious aim to increase the income of B40 income group
to RM 5,800 per month as what they called “Decent Living Income”.
As an overview, Malaysia can be said as a developing Muslim country that relatively
has combat the issue of poverty based on the official data from government. As the criticism
of PLI in Malaysia has become a huge discussion, the official data can be said as underreported
as it not reflects the real situation of poverty in Malaysia. Thus, it is suggested for Malaysian
government to adjust the indicators such as PLI to make it more relevant and reflecting the real
situation of Malaysian poverty rate. As Malaysia start to use MPI as a new indicator which is
more precise, government should provide the data as soon as possible as the data is still not
available for the public or academics to make some discussion. In term of inequality even the
data of Gini index shows a decrease in inequality, the real situation is not really reflected in
that index. Shared Prosperity Vision 2030 shows a better real situation and it shows how serious
government in overcoming the inequality issues. However, it is better for the government not
to treat absolute poverty as part of B40 income group as they need special attention rather that
treat them the same as B40 groups. It is suggested for the government to give transfer payment
not only based on income but also based on dependent of a household.
References

Dzulkifly, D. (2019). Malaysia must face reality of its poverty level, says PM’s economics
adviser. MalayMail. [online] Available at:
https://www.malaymail.com/news/malaysia/2019/08/27/malaysia-must-face-reality-of-
its-poverty-level-says-pms-economics-adviser/1784552 [Accessed 28 Sep. 2019].

Dzulkifly, D. (2019). UN rights expert: Malaysia’s poverty rate grossly underreported, actual
number between 15 to 20pc. MalayMail. [online] Available at:
https://www.malaymail.com/news/malaysia/2019/08/23/un-rights-expert-malaysias-
poverty-rate-grossly-underreported-actual-number/1783504 [Accessed 28 Sep. 2019].

Economic Planning Unit. (2015). Enhancing inclusiveness towards an equitable society. In

Eleventh Malaysia Plan 2016-2020 (p. 23). Kuala Lumpur: Percetakan Nasional
Malaysia Berhad. Retrieved from
https://www.pmo.gov.my/dokumenattached/RMK/RMKe-11Book.pdf

Fong, D. (2019). Anwar wants review of Malaysia’s poverty line. FMT News. Retrieved
from https://www.freemalaysiatoday.com/category/nation/2019/09/18/anwar-wants-
review-of-malaysias-poverty-line/

Habibu, S. (2019). Malaysia dismisses UN rep's claim of high poverty rate. The Star Online.
[online] Available at: https://www.thestar.com.my/news/nation/2019/08/23/malaysia-
dismisses-un-rep039s-claim-of-high-poverty-rate [Accessed 28 Sep. 2019].

Khazanah Research Institute. (2019). The Absolute vs Relative Poverty Conundrum.

Malaysia: Khazanah Research Institute.

Siddiqui, K. (2012). Malaysia ’s Socio-Economic Transformation in Historical Perspective.

International Journal of Business and General Management (IJBGM), 1(2), 21–49.

Yazid, A. (2014). Colonial Policy and the Impact to the Politico-Economy Stability after
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Review ff History and Political Science, 2(3&4). doi: 10.15640/rhps.v2n3-4a4
Appendix

Malaysia Poverty Rate

(Based on national Poverty Line Income)
60

50
Poverty Rate (%)

40

30

20

10

0
1970 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009 2012 2014 2016
Year

Figure 1: Graph of Malaysia Poverty rate from 1970-2016. n.d., Retrieved From https://www.mea.gov.my/en/socio-
economic/household-income-poverty

Figure 2: Median income gap between income group T20-B40, Reprinted from Ministry of Economic Affairs
(2019), Ringkasan Wawasan Kemakmuran Bersama 2030.
 Malaysia Gini Coefficient 1970-2016
0.6

0.5

0.4

0.3

0.2

0.1

0
1960 1970 1980 1990 2000 2010 2020

Figure 2 Malaysia Gini Coefficient 1970 to 2016. Sources : Ministry of Economic Affairs