An idea whose time has come: Increasing Malaysia’s poverty line

Back in 1977 Malaysia was a largely agrarian lower-middle income country, with a monthly gross national income (GNI) per capita of 200 Malaysian ringgit (MYR), or about US$ 80 at the prevailing market exchange rate at the time. That was the year that Malaysia set its first official monetary poverty line, estimating that a household required the equivalent of approximately MYR 50 (US$ 20) per person each month to achieve a basic standard of living. 

Since then, Malaysia has prospered and its GNI per capita has risen to MYR 3,650 (US$ 872) per month, an increase of 324 percent after adjusting for inflation. However, the inflation-adjusted poverty line has only increased 15 percent over the same time period. As a recent report by the United Nations Special Rapporteur (UNSR) and others have argued, an update of Malaysia’s poverty line is long overdue. 

Regardless of the poverty line used, no one would deny that Malaysia has made remarkable progress in reducing poverty—from almost half of the population living in poverty in 1970 to less than one percent today based on the 1977 standard that is still in use. Yet it is time to raise the bar. Even absolute poverty lines need to be upgraded to reflect the current realities in Malaysia and remain relevant for decision making.

It is a common misconception that absolute poverty lines should be based on the minimum needs for survival.  Rather, poverty lines go beyond basic subsistence, and include having the resources to lead a healthy, active and dignified life and being able to participate meaningfully in society. That is why virtually all countries update their poverty lines as they develop and living standards improve. This concept is elaborated quite clearly in the United Nations Economic Commission for Europe’s (UNECE) methodological guide that Malaysia references for setting its poverty line: “Also the base of the absolute measure, that is the basket of goods, is likely to need updating over time as community standards or expectations change.” One recent example is Mexico, a country with a GNI similar to Malaysia’s, where the autonomous panel responsible for setting the poverty line revised its standards upwards in 2018. 

What should Malaysia’s poverty line be? Ultimately that is for Malaysians to decide, based on Malaysians’ own values and aspirations, perhaps drawing lessons from other countries that have advanced to upper-middle or high-income status. Recent research by Martin Ravallion shows that countries with average incomes similar to Malaysia’s have absolute poverty lines equivalent to MYR 2,550 (US$ 1,460 adjusted for purchasing power parity) per month for a family of four, almost three times Malaysia’s current poverty line. That poverty line would yield a poverty rate of 18 percent, which is about the same poverty rate that arises from applying an OECD-style relative poverty line, and also within the 16–20 percent range given in the UNSR’s press release. 

The multidimensional poverty index (MPI) introduced in the 11th Malaysia Plan is also too low for a country at Malaysia’s level of development. Malaysia’s MPI takes into account monetary plus non-monetary aspects of deprivation such as sub-standard education, health, and living conditions. Even when non-monetary aspects of well-being are considered, Malaysia’s multidimensional poverty index counts less than one percent of Malaysians as multidimensionally poor. At the recent World Statistics Congress in Kuala Lumpur, World Bank staff presented new research on a potential alternative MPI for Malaysia, using the same multiple dimensions as the current MPI but setting standards relevant to an upper-middle income country. This alternative estimates Malaysia’s rate of multidimensional poverty at 19 percent. 

The UNSR’s report also rightly draws attention to those who are disproportionately affected by poverty. It highlights that not only is poverty more prevalent than the isolated pockets often assumed, but also that poverty is deeper among some communities in Malaysia. Many of these are “statistically invisible” because the Household Income and Basic Amenities Survey that is used as the basis for poverty measurement excludes Orang Asli settlements, foreign workers and refugees. The survey does not record the status of persons with disabilities, and its sample design prevents reliable poverty estimates for indigenous people in Sabah and Sarawak (non-Malay Bumiputera), whose poverty rates appear to be much higher than those of Malays.

The government authorities have the technical and financial resources to modify the Household Income and Basic Amenities Survey to make these comparisons possible. It is time to do so, as the absence of this information impedes the formulation and implementation of policies to help Malaysians escape poverty.  Updates of Malaysia’s income-based poverty line and multidimensional poverty index to levels corresponding to the country’s present state of development can complement the current focus on the bottom 40 percent to guide policies to ensure that the needs of the poorest Malaysians are addressed adequately. 

It will take political courage, and good communications, to raise Malaysia’s official poverty standards. Inevitably some will claim, incorrectly, that poverty has increased. The reality is that poverty has not been increasing, but rather that Malaysians expect more from life and more from their government and most of all to share in the nation’s prosperity.