Poverty in Malaysia

Malaysia Measuring and Monitoring Poverty and Inequality

Foreword
In the last quarter of the twentieth century, Malaysia’s economic transformation was little short of spectacular. At the time of independence in 1957, Malaysia was a low-income, predominantly agricultural and rural economy. Around half of the country’s households were living below the national poverty line, with very little changed up to 1970, at which time 49 per cent of households were poor. In the following three and a half decades, rapid economic growth and structural change have transformed Malaysia into a prosperous, urban, and industrialized economy. By the end of the century, Malaysia’s poverty rate had fallen below 10 per cent, and in 2007 to less than 5 per cent. The nation has attained high human development.

Malaysia’s economic transformation owes much to its human and its natural resources. It also owes much to the sound economic, social, and commercial policies pursued, as well as political stability and national unity. Two broad features of the post-1970s have helped to reduce poverty: the country’s enviable economic growth record and the national commitment to a more equitable distribution of income.

At the beginning of the 1970s, the Malaysian economy relied largely on the production of primary products (natural rubber, tin, and palm oil) for world markets. Successive commercial policies gradually dismantled barriers to trade so that the country is today one of the world’s most globalized economies. Manufacturing, rather than agriculture, has been primarily responsible for the country’s export successes in recent decades. Exports of manufactured goods, particularly of electrical and electronic products, have been the key factor in sustained rapid economic growth.

Malaysia has also enjoyed macroeconomic stability. Liberal commercial policies and bold .nancial management have been important factors behind Malaysia’s strong and sustained growth record. Some economists have argued that economic growth, with its correlate of increased modern sector employment, is an essential pre-condition for poverty reduction: Malaysia provides an excellent illustration.

Malaysian governments have also aimed for a more equitable distribution of income and this is the second feature of the post 1970 period that has contributed to poverty reduction. Rural development programmes helped to raise the incomes of impoverished agricultural communities.

The New Economic Policy (NEP), formulated in 1970, sought to lessen the association of race with economic function. Policies were motivated by the idea that all communities should share in the country’s growing prosperity. Successive .ve-year plans have sought to achieve ‘growth with distribution’. This open commitment to economic prosperity for all has been an important ingredient in Malaysia impressive poverty record.

While the national poverty rate is extremely low by historical standards, there are still substantial spatial and community variations. Thus, for example, there remain relatively large numbers of poor households living in poverty in rural Sabah and Sarawak, as well as in the rural areas of Terengganu, Kelantan, and Kedah. The overwhelming majority of the country’s remaining poor are Bumiputera; especially prominent are the indigenous communities in Sabah and Sarawak.

Malaysia aims to improve on the poverty targets set through the Millennium Development Goals (MDGs). The Ninth Malaysia Plan, 2006–2010, repeated the commitment to achieve growth with distribution and set targets of reducing the overall poverty rate to 2.8 per cent and eradicating hard-core poverty by 2010. It also set ambitious targets to narrow income disparities and improve equity. In order to help achieve these targets, it is essential for policymakers to work with re.ned and disaggregated measures of poverty and inequality. This monograph describes and illustrates a range of useful approaches that can be used to measure and monitor poverty and income inequality.

We would like to thank members of the Project Team (listed on page xi of this monograph) from the Distribution Section of the Economic Planning Unit (EPU), the Department of Statistics (DOS) Malaysia, and UNDP for their excellent collaboration in putting this monograph together, under the able technical leadership of Mr David Demery of the University of Bristol with close support from Dr Chung Tsung Ping. We are con.dent that the publication will be of considerable value to all those interested in measuring and monitoring poverty and income inequality. We hope that it will also prove to be a useful tool for policymakers and practitioners in other developing countries and serve as a technical tool in South–South Cooperation for the achievement of the MDGs.