Are We Transitioning into a High-Income Economy?

 

A high-income economy is defined by the World Bank as a country with a gross national income (GNI) per capita of US$12,536 or more in 2019, calculated using the Atlas method. And according to the World Bank, Malaysia is likely to exceed the threshold that defines high-income economy status between 2024 to 2028.

Malaysia‘s GNI per capita was at US$11,230 in 2019, and this was before the pandemic. Based on historical data, the 10-year average growth rate on Malaysia’s GNI per capita was 4.14% whereas the 10-year average growth rate for high-income threshold was only 0.29%.

 

 

Quantitatively, the projection of breaking high-income threshold by 2024-2028 looks possible. The difference between the threshold and Malaysia’s GNI per capita over the years is getting smaller. In 2019, we are only US$ 1,306 below the threshold.

However, when compared to other countries that achieved high-income status in recent decades, Malaysia is growing more slowly. The country has a lower share of employment at high skill levels, and greater inequality. There is also a growing sense that the aspirations of Malaysia’s middle-class are not being met and that the proceeds of growth have not been equitably shared between the richest and the poorest.

Adding labour and capital is not sufficient to maintain growth, let alone to ensure that its benefits are shared equitably. Malaysia needs to use its resources more efficiently, produce new ideas and products, expand markets, and increase productivity.

Even more important, Malaysia needs to ensure that it achieves broader economic development by focusing on the quality, and not just the quantity, of economic growth that involves far more than merely increasing per capita income. Its ultimate end is to enable its citizens to enjoy greater freedom and ability to determine their own preferred outcomes. What worked in the past will not work in the future. Malaysia needs an enhanced social contract between the state and the country’s citizens. It needs to account for a more diverse set of incentives and more dynamic, heterogenous drivers of growth. And that requires some honest soul searching, which the present Government will avoid because of its political ramifications.

 

Reference:

Aiming High: Navigating the next stage of Malaysia’s development, World Bank Group, 16 March 2021