This article first appeared in Corporate, The Edge Malaysia Weekly, on May 2 - 8, 2016.

LAST week, the Performance Management Delivery Unit (Pemandu) gave Malaysia’s National Transformation Programme (NTP) a sterling report card for 2015 as the 10-year plan reached its mid-point.

The NTP 2015 annual report revealed that both the Government Transformation Programme (GTP) and Economic Transformation Programme (ETP) achieved all their key milestones last year towards becoming a high-income economy by 2020.

For one, the GTP, whose aim is to transform the government into an efficient and people-centric institution, met 99% of its key performance indicators (KPIs).

The ETP, whose goal is to lift Malaysia’s gross national income (GNI) per capita to US$15,000 by 2020, was more impressive with its 12 national key economic areas and strategic reform initiatives exceeding their KPIs to achieve an overall score of 109% and 108% respectively.

But dig deeper and go behind the headline numbers of the report and you will learn that Malaysians were poorer last year.

According to Pemandu, Malaysia’s GNI (calculated using the World Bank’s Atlas method) fell to US$10,110 last year from US$10,760 in 2014.

Pemandu blames the depreciation in the ringgit, particularly in the second half of 2015, for the dent. This was in line with the high income threshold, which also declined from US$12,735 in 2014 to US$12,303 in 2015 because of the significant weakening of the euro and yen vis-à-vis the US dollar.

The government think tank asserts that it remains “confident that Malaysia will reach high-income nation status” come 2020.

Julia Goh, economist at United Overseas Bank (M) Bhd, concurs, saying a dip in GNI in one year will not derail Malaysia’s quest for US$15,000 per capita.

“The drop is an estimate by Pemandu but the World Bank has not released the GNI figure yet. Based on our 1997/98 experience, there was a decline in GNI per capita in tandem with weaker currency and growth but it then gradually recovered in subsequent years,” she explains.

Such confidence may not be misplaced. Malaysia’s GNI per capita rose 8% a year between 1970 and 2010, when it reached US$8,636. Since the introduction of the ETP, the country’s GNI has grown 17%.

Growing wealth stemming from economic development suggests that many Malaysians have been pushed into the middle class while more low-income earners have climbed above the national poverty line. This is partly confirmed by the Department of Statistics’ survey of household income in 2014, when the average household income in Malaysia was found to have risen from RM5,000 in 2012 to RM6,141. This represented a compound annual growth rate of 10.3% during the period.

Meanwhile, the World Bank revealed that Malaysia’s extreme poverty rate had dropped to 0.28% from among the highest in the world just four decades ago.

While such headline figures are impressive, they also present an incomplete picture.

A MIDF economist points out that such data does not always capture “the actual economic condition of the country”. This is because headline numbers leave out representations of income distribution, mask the gap between the rich and the poor and ignore the significant proportion of Malaysian households that are within the perimeters of the Bottom 40 (B40), a term coined by Prime Minister Datuk Seri Najib Razak.

Najib defined B40 households as those with a monthly income of up to RM3,855 and who grappled with the rising cost of living and deserved state-backed financial aid.

There is further evidence that fills the gaps. The Department of Statistics survey on household income shows that over 65% of Malaysian households survived below the national average income level in 2014 and that 42% of households had just a 17.9% share of the country’s income. The latter were in the B40 and qualified for the prime minister’s Bantuan Rakyat 1Malaysia (BR1M) scheme, a direct cash handout for households getting by on less than RM4,000 a month.

In contrast, the survey shows, only 5.4% of households were in the highest gross income class of RM15,000 per month and above but controlled a 21% share of the country’s income.

Incomes have, in fact, risen faster for low-income groups but the MIDF economist says the nominal growth is “still too small”, leading to a high number of households earning less than RM4,000 a month.

The reach of BR1M since its introduction in 2012 is also startlingly at odds with Malaysia’s growing prosperity. The scheme is a cash subsidy targeted at mitigating the effect of rising costs on low-income earners. However, it also artificially raises the income and supports the consumption levels of the B40.

According to the government, 5.2 million low-income households received cash handouts under BR1M in 2012. Today, the number of Malaysian households and individuals entitled to the scheme has grown to 7.1 million.

Pemandu considers BR1M as a way to efficiently distribute cash to low-income earners and help them cope with rising costs. Ironically, its growing success is a sign that an increasing number of households find themselves in more challenging circumstances than before.

Furthermore, the B40 are the most indebted, according to the central bank. Bank Negara Malaysia, in its 2015 Financial Stability Report, says that the share of borrowings by highly leveraged lower-income households that earned RM3,000 and less a month stood at 23.5% of the total.

The aggregate leverage for households in this group hovered at seven times their annual income compared with three times  in the higher-income group. High levels of debt can threaten real income growth.

Pemandu has made a special effort at dragging the B40 into income-generating or income-enhancing activities. It is increasing rural-urban connectivity by building roads and making sure basic amenities, such as electricity, water and roads, are accessible to rural communities as a way to improve their standard of living.

At the same time, it is developing rural economies by opening up village communities to take up high-value industries, such as eco-tourism.

Economic empowerment is also on the agenda with the 1AZAM programme that offers training, financial assistance, business coaching and micro-lending to aspiring entrepreneurs, and also job-matching services.

Pemandu’s NTP annual report also provides anecdotal evidence of the encouraging outcomes of its programmes. A closer look at the back pages of the report, however, suggests that these Pemandu-driven programmes are not creating widespread wealth and that the number of participants they are reaching is still small compared to BR1M. 

For instance, the 1AZAM initiative to raise the standard of living of low-income households reached out to only 19,945 new participants. 

Only 18,880 existing 1AZAM participants increased their income by RM300 in any three months and just 1,511 participants obtained a minimum of 50% increase in income from existing 1AZAM projects for a consecutive period of three months.

Pemandu says more of such programmes will be implemented with the support of non-governmental organisations and the private sector. Whether or not these efforts result in raising the income level of the low-income group remains to be seen. 

Meanwhile, the low-income households, which still feature prominently on the Malaysian economic landscape, are not likely to threaten Malaysia’s GNI per capita target of US$15,000.

Economists say achieving the goal is a question of when, not if.

“Potential downside risks to Malaysia becoming an advanced nation in the 2020-2022 period are the Chinese economy experiencing a hard landing, which would have severe negative effects on the rest of Asia, and the US economy entering a recession at some point before 2020,” says Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight.

“Both the events could derail global economic growth and have negative transmission effects on Malaysia’s economic growth path, which could postpone the date when Malaysia becomes an advanced nation.”

But spreading Malaysia’s wealth evenly and including the poor in the plans for boosting income will help ensure that the GNI per capita, when it is reached, is more than a hollow figure.

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