A Comprehensive Breakdown of Malaysia’s Poverty Measurement Methods

When the special rapporteur on extreme poverty and human rights of the United Nations- Professor Philip Alston visited Malaysia during August 2019, he released a statement shortly after the visit saying that Malaysia’s poverty rate in 2016 was around 16 – 20% as opposed to official government statistics of 0.4%. This caused a huge controversy since Malaysia’s government has always identified its success in poverty alleviation. Professor Alston even refers to the low rate of poverty as a “statistical sleight of hand” that could directly hinder the effectiveness of poverty reduction policies and schemes. Consequently, this could cause significant underinvestment in poverty reduction due to the disconnect between the official poverty figures and actual household needs on the ground. In response to the ex-UN’s report, the Department of Statistics Malaysia (DOSM) recently revealed a new methodology that provides a more comprehensive overview into the situation of poverty, setting the official poverty rate of 2019 at 5.6%. This article aims to create an overview of how Malaysia measures its poverty and the implications behind a more comprehensive poverty measurement method. 

Introduction

As Malaysia progresses forward in pursuit to become a high income developed nation, accurate and holistic poverty measurement methods are imperative to attain such goals. It enables the government to set the eligibility criteria for social assistance programmes, thus improving social mobility along with a more equal distribution of wealth. This article will first define the two most relevant economic terms that will affect the ways countries define poverty. Absolute poverty is defined as a situation where the household income is below a certain threshold necessary to meet the necessities of life. In other words, people who experience absolute poverty lack basic necessities (food, clothing, shelter) to sustain themselves. Relative poverty is measured when a household is receiving income 50% below the median income of the general population of the country. Furthermore, relative poverty changes over time, depending on the standards of living of the societies. Malaysia focuses on identifying absolute poverty to curate poverty alleviation policies, aiding those in need. That being said, the government uses two main methods as indicators-  the Poverty Line Income (PLI) and the Multidimensional Poverty Index (MPI).

Poverty Line Income (PLI) 

Poverty Line Income is the level of income where a personal or household income below the level would be classified as poor according to government standards. In Malaysia, PLI includes households with four individuals. The PLI differs in East and West Malaysia, where the government acknowledges the difference between the cost of living in both areas.

Previously, the PLI was RM980 for Peninsular Malaysia but was at a higher rate of RM1,020 for Sarawak and RM1,180 for Sabah. The ministry explained that the PLI was higher in Sabah and Sarawak because additional costs such as transportation were taken into account. Hence, this means that any household’s monthly earnings below the set poverty line were considered poor. Referring back to Malaysia’s official figure of the 0.4% poverty rate, this implies that there were around 24,700 households that were categorized as poor in 2016. 

Just recently, the revised national PLI was raised to RM2,208. According to this new methodology, it can be derived that 5.7% of households were considered poor in 2019 compared to 0.4% in 2016. In number terms, around 405,441 households were now considered living in poverty. This new methodology calculates a wider range of quality non-food items and emphasizes more on optimal food intake rather than just “minimum food requirements” and “basic non-food items”. Statistically, this new PLI helps to identify more pockets of poverty.  

Multidimensional Poverty Index (MPI) 

The Multidimensional Poverty Index (MPI) is another indicator that identifies multiple deprivations across 3 dimensions: health, education and standards of living. Household surveys are conducted to gather microdata which will then reflect the weighted number of deprivations each individual in household experiences. This will decide if one is classified as poor or not. The table below shows how MPI reflects deprivation. 

This indicator demonstrates the intensity of deprivation and illustrates the respective situation that the poor live in, which can then be compared globally by ethnic group, urban, rural and geographical location. This could provide insights for international organisations such as the United Nations Development Programme (UNDP), The Organisation for Poverty Alleviation and Development (OPAD), UNICEF and Oxfam, curating specific aid for the poverty-stricken. 

Malaysia launched the 11th Malaysia Plan which introduced a customized version of the MPI, covering aspects on education, healthcare, standards of living and income. As of 2016, only 0.86% of households (roughly around 56,000 households) were found multidimensionally poor. 

Were the Previous Methodologies Regressive?  

Malaysia was just an agricultural, low-income country dated back in 1977, which has an approximate 46% poverty rate measured using an extremely low poverty line. After decades of constant development and industrialisation, Malaysia is now one of the leading exporters of electronic appliances and components, propelling the country towards achieving the high-income nation status. 

The problem is whilst Malaysia has achieved significant economic growth over the years, the issue of poverty might still hinder the country’s ability to attain such endeavours. Hence, much scrutiny has been done to the national poverty line to assess its accuracy and effectiveness. Many economists suggest that the 2016’s poverty line was regressive because the poverty figure it yielded has alienated the cost and standards of living in Malaysia. For instance, the 2016’s PLI of RM980 implies that an urban family of four would have to survive on RM8 per person per day; whereas other upper-middle-income countries would typically have a poverty line of RM24 per person per day. Even with RM24, with the high cost of living in urban cities, it does not seem sufficient. Does RM8 sound notoriously low now? Besides, it is found that as of 2016, households with a monthly income of RM2,000, more than twice the previous poverty line (RM980), spent 94.8% of their incomes on basic household consumption items, only leaving them pennies to save. However, these people do not fall under the predicament of being “absolute poor” but only “relatively poor” according to 2016’s PLI.

On the other hand, Malaysia’s MPI established in the 11th Malaysia Plan is not a holistic resemblance of the actual poverty state in Malaysia due to the low benchmark set. This is embodied in the mid-term review of the 11th Malaysia Plan where it shows that only 0.86% of households are multidimensionally poor; despite displaying a figure of 38.9% of households experiencing multiple forms of deprivation. If there are approximately 40% of households being deprived in certain aspects of life, and MPI figure of less than 1% becomes utterly unconvincing and questionable in providing realistic insights to the poor’s day to day life.  

Therefore, this assumes that the government previously was not able to make the most optimum and relevant decisions to support the huge demographic of Malaysians that were “invisible poor”, living in abominable conditions and in need of social protection.

The implication of a More Comprehensive Poverty Measuring Method

The new revised poverty line is commendable as it gathers more accurate statistics and data that are relevant to policymakers. For example, it widens the scope of government assistance programmes to those who were left out previously, prompts discussion on the minimum wage and plays as a factor when it comes to the government’s annual budget setting. The latest methodology also includes an evaluation of the quality of diet and basic needs which can potentially combat the problem of food shortages for poorer households should the government focus on providing them aid. However, raising the poverty line comes hand in hand with targeted policies from the government, to ensure that the figures are not merely displayed data. 

On the other hand, many economists (including the world bank) suggest revising the Multidimensional Poverty Index with a higher benchmark in the upcoming 12th Malaysia Plan (2021-2025) to improve the standards of living of our nation. Below is a visual graphic that compares Malaysia’s current MPI with an alternative benchmark set and presented by the world bank in the 62nd ISI World Statistics Congress 2019. 

Although the data obtained from the Household Income and Basic Amenities Survey were limited when constructing this table, it still manages to show that with a higher benchmark, 19.2% of the population is said to be multidimensionally poor. This gives a clearer picture for the government to develop more specific poverty reduction policies in areas of healthcare, education and living conditions.  

All in all, there is still lots of work to do for Malaysia to reduce poverty and economic inequality. This article should serve as a stepping stone for further research about the effectiveness of Malaysia’s poverty alleviation policies to ensure that the people who are suffering from poverty are receiving adequate assistance from the government. In conclusion, as long as Malaysia continues to rethink and refine its approach towards poverty eradication, Malaysia will eventually emerge as a strong economy.


Researcher: Jonathan Leng Yu Cheng

Edited by: Adam Jantan

Reviewed by: Yang Ler Lee, Millen Lau

Download the article: A-Comprehensive-Breakdown-of-Malaysias-Poverty-Measurement-.pdf