World Bank: Malaysia should focus on middle class’ growing aspirations

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KUALA LUMPUR (Dec 5): Malaysia needs to focus on policies that could meet growing aspirations of the huge middle class group in the country, according to a senior World Bank economist during the launch of a report today which she co-authored.

“The policy agenda will need to be tailored to each country’s circumstances…For progressive prosperity countries like Malaysia, which have largely eliminated extreme poverty and fostered a large middle class, the priority is to satisfy the middle class’ growing aspirations, while mobilising resources to address remaining disparities,” said Dr Caterina Ruggeri Laderchi, who co-wrote the report entitled 'Riding the Wave: An East Asian Miracle for the 21st century'.

Laderchi said the three pillars to support these policy agendas are: fostering economic mobility, enhancing economic security across economic classes, and strengthening institutions.

“For economic mobility, there is a need to close gaps for access to jobs and services, improve the quality of jobs and promote financial inclusions. As for the second pillar — enhancing economic security — it includes bolstering social assistance systems, expanding social insurance and increasing resilience to shocks. 

"Strengthening institutions is the third pillar, and includes progressive taxation policies to raise resources, and improvements in the effectiveness of inclusive spending programmes,” Laderchi added.

She noted that each country’s circumstances could be different and not all pillars would be important for each of the economic classes, thus the need to identify priorities.

Malaysia, she said, is considered a progressive prosperity country, alongside Mongolia and Thailand. The World Bank has categorised countries into five different classes. 

Of the remaining four categories, two are: lagging-progress countries such as Laos and Papua New Guinea that need to prioritise poverty reduction; out-of-extreme-poverty countries like Cambodia, Indonesia and the Philippines, where the focus would be on securing progress and fostering upward mobility. The other two categories are: out-of-poverty-into-prosperity countries like China and Vietnam; and Pacific Island countries.

The report recognised the success in East Asia that has lifted over 40% of the region’s population out of poverty in the last two decades, which it acknowledged was a remarkable achievement. 

That success was driven by policies aimed at promoting labour-intensive growth and investments in human capital, Laderchi said. To sustain such progress, more deliberate policy efforts are required to meet expectations, she added.

In Malaysia, the incidence of extreme poverty is negligible and groups in moderate poverty and economic vulnerability account for less than 3% of the country’s population.

Nonetheless, Dr Sudhir Shetty, the World Bank's chief economist for East Asia and Pacific, emphasised it is important for the country to narrow the gap on income inequality in the country.

“The Gini coefficient in Malaysia continues to remain high, as compared to its peers such as Indonesia and Thailand. It is lower than China's, but it is considered to be relatively high,” Shetty said during a panel discussion, following the report's launch.

The Gini coefficient is a statistical measure to gauge economic inequality. A zero implies everyone has the same amount of wealth or perfect equality, while 1 means the centralisation of wealth in one household or perfect inequality.

In 2016, Malaysia's Gini coefficient stood at 0.399, compared with 0.441 in 2009. 

Prof Datin Dr. Norizan Abdul Razak, director of Women Leadership Centre and Chair for Grand Challenge on B40 empowerment at Universiti Kebangsaan Malaysia (UKM), said the country, according to the 11th Malaysia Plan, is moving towards narrowing the income inequality gap by increasing the middle income society to 45% of the population.

It aims to do so by doubling the average monthly income of the B40 (bottom 40) households from RM2,537 in 2014 to RM5,270 in 2020, as well as their median monthly income from RM2,629 in 2014 to RM5,701 in 2020.
 
“The 11th Malaysia Plan also aims to increase the percentage of B40 households with tertiary education attainment from 9% in 2014 to 20% in 2020. The government also targets to increase the income share of B40 to national household income from 16.5% in 2014 to 20% in 2020,” Norizan shared.

However, there are crucial issues faced by the B40 households that need to be addressed, she said. Among them are: the lack of opportunity for continuous education for skills development, rising costs of living, fragmented implementation of social safety net programmes that yielded ineffective results, the inability to own a house, as well as limited access to quality healthcare services. 

Education, said Norizan, will be the key to elevate the B40 households’ earnings power.

“As a lot of these B40 individuals are involved in low skills and low value-added jobs, most of them would be affected by the 4th Industrial Revolution and replaced by automations and robots. We need to make sure these groups are being helped to improve their skills so that they will not be further marginalised,” she added.