Malaysia is gearing itself towards being a high-income economy. In a new series, iMoney considers what it means for Malaysians today and their finances.
When Prime Minister Datuk Seri Najib Razak rolled out a broad outline of the New Economic Model, he stated the goal was to propel the Malaysian economy into the high-income bracket.
But not at all costs. In his outline of the growth process, he mentioned words such as inclusive and sustainable. This was in 2010, wherein the target set to achieve this was the year 2020. That’s three years from now.
The government arm tasked with facilitating this transition is Pemandu. Its chief, Datuk Seri Idris Jala, believes the country is still on track.
Malaysia was merely 15% short of the gross national income (GNI) annual per capita criteria set by the World Bank to be a high-income nation, he said. The World Bank threshold is US$15,000 per capita.
In our first article, we set out to broadly define what it meant to be a high-income economy. In this second piece, we look at some of the policy challenges and, ultimately, whether certain segments of society – including yourself – will be left behind.
A silly obsession?
Recently, Najib said the ambitious, broad-based National Transformation Programme (NTP) helped Malaysia narrow the gap in reaching the high-income target from 33% to 18% between 2010 and 2016.
He said this was commendable as the NTP had been instrumental in propelling the country out of the middle-income trap in 2009.
But as the clock ticks, will Malaysia reach its high-income ambitions?
Lee Hwok-Aun, senior fellow at the Institute of Southeast Asian Studies (Iseas), believes so, “as long as our GNI per capita grows faster than the GNI per capita of high-income countries.”
“This combination will surely persist, so Malaysia is on track,” he tells iMoney in an email interview.
Hwok-Aun added that Malaysians should stop fussing over whether it will happen in 2020 or even before or later.
“Passing the high-income line gains prestige and symbolic success, but does not lift living standards or socioeconomic development into a higher realm.
“So let’s not get too triumphant about it, which breeds an obsessive defence of reaching that target and silly arguments, such as, if we used US dollar exchange rates of some years ago, Malaysia would qualify as ‘high income’.”
Kuala Lumpur, the high-income capital
“You want to be a developed country. That’s my beef with high-income. It is never about reaching, say, US$15,000 per capita,” said Muhammed Abdul Khalid, founder and chief economist at DM Analytics.
He tells iMoney that being high-income does not mean people’s income would go up.
“If you want to know how high-income feels like, look at Kuala Lumpur. It achieved ‘high-income’ status roughly about ten years ago, yet there are people among us who can’t afford to meet the living standards or achieve that level of wages.”
The overall index for Consumer Price Index rose at 3.9% on a year-on-year basis in May 2017 compared with a 4.4% increase in April 2017.
Kuala Lumpur is a microcosm of a high-income economy.
According to the Department of Statistics Malaysia (DOSM), six states recorded higher increases under the Food & Non-Alcoholic Beverages index, above the national level index for May, compared to the corresponding month in 2016. Kuala Lumpur saw a 4.9% rise.
“Being high-income doesn’t mean people’s income goes up. We are now upper middle income but we have only one state, Kuala Lumpur, where half of the median income is above RM3,000. Even Penang and Selangor, it’s below RM3,000.
“Just in KL, according to DOSM data, half of the workers earn RM2,400 a month, contra that with the high-income standard.”
But wouldn’t a high-income bracket be positive for the country’s gross domestic product (GDP)?
“Of course. GDP goes up, but you can also not be bothered about how it goes up. Being stuck in a traffic jam raise GDP, but is it sustainable? One person can control everything and GDP goes up. What you want is to be a developed nation, where inclusive development is the key, especially among the B40 group.
“Inclusive here doesn’t mean addressing the rich-poor gap, but everyone participates in policymaking,” said Muhammed.
He adds that being a high-income economy doesn’t capture that inclusiveness that the share of highly skilled workers had been decreasing.
“What you want is a high-income society where the country is developed, leaving no one behind.”
Enter, the useless class
The idea of the useless class was mooted by Historian Yuval Noah Harari where he envisioned a world heavily relying on artificial intelligence, and so creating an “unworking” class.
Economists are predicting that by 2050, virtually all industries from banking to manufacturing will integrate digitised automation and robotics. On the chopping block are mid-skilled workers.
“Unless we take corrective actions, this might just happen,” said Muhammed. What’s more concerning is the country’s aging population.
The United Nations projects that by 2030, Malaysia will be an aged country, with 14% of the population or 5.2 million people aged 60 above.
“The government and private sector will have to think together on this. If we do not deal with this problem, it will drag the country. Productivity will be lower and there will be higher demand for public resources,” said Lee Heng Guie, executive director of the Socio-Economic Research Centre (SREC).
Early this year, the Employees Provident Fund (EPF) revealed that only 40% of Malaysians are financially ready for retirement. But it added that more than 75% found it difficult to save RM1,000 for emergency needs, citing economic uncertainties and high cost of living.
“A lot of people think that EPF alone is enough to retire, and we are not just talking about a minimal retirement lifestyle. We have not factored indicators such as cost of living and inflation,” said Heng Guie, adding that financial literacy is key.
The adjustment game
As noted, Malaysia is on its way to being inducted into the high-income club. Whether we like it or not, many of us will have to adapt and adjust.
The best place to start is consider paying down debt. Economists are already warning that household debt may increase and there is already a steady rise in bankruptcy cases nationwide. The main causes are car, housing and personal loans.
It has to be reinstated that a credit facility is only an asset provided you can pay it off promptly. Struggling to make payment will not do and this ultimately calls for a lifestyle adjustment, whether we like it or not.
Artificial intelligence will render many useless. Will you be among that group when Malaysia turns high-income?
Millennials in particular should take heed. The iMoney survey found that the country’s young were having a tough time surviving financially, with many being knee-deep in debt and on the brink of bankruptcy.
Latest government data shows that more than 20,000 millennials have been declared bankrupt in the last four years. Especially in a time when wages are not going up as fast as the cost of living, Malaysians will have no choice but to adjust and this can range anywhere from taking up a second job to cutting down on a list of lavish monthly expenditures.
In the government’s bid to achieve high income nation, equal (if not more) effort should be put into upskilling the population. This includes making education and training more easily accessible, geographically and financially, to everyone.
Paying down credit and managing their money well is just one part of the bigger picture. Malaysians must not rest in their laurels and be contented with what they have and what they can do. Investing in themselves is no longer a nice-to-have option, because making sure their skills match the competition has now become a matter of survival.
The competition is only going to get stiffer as the country becomes high income nation, and if the authorities are not doing what they can to elevate the people, a high income status will only bring grief and affect the people’s livelihood in the long-term.
