COLLEGE OF UNITEN BUSINESS SCHOOL (UBS)

UNIVERSITI TENAGA NASIONAL

PUTRAJAYA CAMPUS

SEMESTER 2, 2023/2024

EMYB223 – MALAYSIAN ECONOMY

INDIVIDUAL REPORT

TOPIC: INCOME DISTRIBUTION AND

POVERTY ERADICATION IN MALAYSIA

PREPARED BY:

NAME ID NUMBER

AIGERIM MAKSATBEK KYZY EN01083238

PREPARED FOR : DR. NASRUDIN BAIDI

Table of Contents
1.0 Introduction..............................................................................................................................1
2.0 Background Overview..............................................................................................................2
3.0 Government Actions.................................................................................................................3
3.0.1 Past Efforts to Reduce Poverty in Malaysia.................................................................................3
3.0.2 Current Programs to Help the Poor.............................................................................................3
3.0.3 How Well These Programs Work.................................................................................................4
4.0 Data and Trends.......................................................................................................................4
4.0.1 Poverty statistics in Malaysia........................................................................................................4
4.0.2 Changes in income distribution over time....................................................................................4
4.0.3 Differences in poverty between regions........................................................................................5
5.0 Examples and Case Studies......................................................................................................6
5.0.1 Successful Programs in Malaysia..................................................................................................6
5.0.2 Effects of Government Actions on Poverty..................................................................................6
5.0.3 Challenges and Future Plans.........................................................................................................7
6.0 Challenges and Future Plans..................................................................................................7
7.0 Conclusion................................................................................................................................8
8.0 References.................................................................................................................................9

List of Figures
Figure 1 Past Efforts to Reduce Poverty in Malaysia......................................................................3
Figure 2 Differences in poverty between regions............................................................................5

List of Tables
Table 1 Poverty incident in Malaysia by state from 1970-2009 (in percentage).............................2
Table 2 "Malaysia's Poverty Eradication Journey".........................................................................7
1.0 Introduction

Poverty in Malaysia is a multifaceted issue with significant implications for social and economic
development. While poverty is often narrowly defined by income levels, its conceptualization
extends to encompass various social and psychological factors, including limited access to
education, healthcare, and basic amenities. The Malaysian government has prioritized poverty
eradication efforts, developing its own poverty line to assess minimum consumption
requirements. Despite economic growth and improvements in GDP, stubborn pockets of poverty
persist, hindering the nation's progress towards achieving developed country status by 2020.

A structure of shift is necessary in the fight against poverty, with an emphasis on income
distribution in addition to programmes for reducing it. Because poverty is a dynamic
phenomenon, it requires all-encompassing measures that involve several stakeholders, such as
the corporate sector and local communities. Although state participation in the eradication of
poverty is still up for debate in academic literature, education is a critical component in breaking
the cycle of poverty.

Different economic theories, from laissez-faire to mixed business systems, support different
levels of state intervention. The Anglo-Saxon model in Malaysia places a strong emphasis on
inclusive and sustainable development strategies meant to reduce income gaps and advance
intergenerational equity. In order to guarantee fair resource distribution and social welfare, state
involvement is further justified under Rawls' theory of justice.

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2.0 Background Overview

Malaysia has made significant progress in poverty reduction and income distribution since its
independence in 1957. Early efforts focused on the National Economic Plan (NEP) introduced in
1970, which aimed to address economic imbalances and improve the well-being of the
Bumiputera population. The poverty line, which was initially based on minimum consumption
needs, has been improved over time to ensure more accurate measurement and effective
intervention.

Economic growth has played a crucial role, as GDP growth has contributed significantly to
progress in education, healthcare and infrastructure, reducing poverty from 49.3% in 1970 to
3.8% in 2010. Despite these successes, Challenges still exist, especially in regional income
disparities and among populations. Urban and rural areas.

To address these challenges, the government implemented the New Economic Model and the
Tenth Malaysia Plan, focusing on inclusive growth and equal opportunities. Efforts include
promoting agriculture, supporting small and medium enterprises, strengthening social safety
nets, and prioritizing education and skills development. These comprehensive strategies aim to
ensure that all Malaysians benefit from the country's economic growth, reflecting Malaysia's
commitment to inclusive and sustainable development.

Table 1 Poverty incident in Malaysia by state from 1970-2009 (in percentage)

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3.0 Government Actions

3.0.1 Past Efforts to Reduce Poverty in Malaysia

Malaysia's efforts to reduce poverty have included the New Economic Policy (NEP) from 1971
to 1990, aimed at eradicating poverty and restructuring society to eliminate racial economic
disparities. The NEP implemented land development, rural projects, education, and employment
programs, significantly reducing poverty from 49.3% in 1970 to 17.1% in 1990. The subsequent
National Development Policy (NDP) continued these efforts from 1991 to 2000, further lowering
poverty rates to 8.5%. Vision 2020, launched in the 1990s, aimed to transform Malaysia into a
developed nation, contributing to economic growth and poverty reduction, although it did not
fully achieve its goals by 2020.

Figure 1 Past Efforts to Reduce Poverty in Malaysia

3.0.2 Current Programs to Help the Poor

Currently, Malaysia has several programs to support low-income families. Bantuan Sara Hidup
(BSH) offers targeted financial aid, replacing the previous 1Malaysia People's Aid (BR1M) for
better needs-based support. E-Kasih, a national poverty database, ensures effective delivery of
aid by tracking low-income households. The Program Perumahan Rakyat (PPR) provides

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affordable housing for low-income families, improving living conditions and reducing
homelessness.

3.0.3 How Well These Programs Work

These programs have had varying levels of success. Poverty rates have declined, with the
absolute poverty rate falling from 7.6% in 2016 to 5.6% in 2019. Cash transfer programs like
BSH provide immediate relief, though concerns about long-term dependency and income
inequality persist. E-Kasih has improved aid targeting, but issues like bureaucratic inefficiencies
and corruption remain challenges. Continuous efforts in economic growth, effective governance,
and human capital development are crucial to sustain and further improve poverty alleviation
outcomes in Malaysia.

4.0 Data and Trends

4.0.1 Poverty statistics in Malaysia

Analysis of poverty statistics in Malaysia reveals that a large percentage of the population lives
below the poverty line. According to official figures, the poverty line in Malaysia as of 2020 is
about US$10 per person per day, based on purchasing power parity (PPP). In 2020, the
proportion of Malaysian households living below this poverty line increased from 5.6% in 2019
to 8.4%. These statistics provide a snapshot of the social and economic challenges facing
Malaysia, and highlight the need for targeted interventions to alleviate poverty and improve
living standards.

4.0.2 Changes in income distribution over time

Over the years, Malaysia has witnessed shifts in income distribution patterns, with implications
for social and economic equity. Historical data on income distribution trends indicate
fluctuations in the Gini coefficient, a measure of income inequality, from 40.7% in 2019 to
41.1% in 2020. These fluctuations highlight disparities between different socio-economic groups

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and highlight the impact of factors such as Economic growth and globalization. Government
policies regarding income distribution. These trends shape the distribution of wealth and
opportunities within Malaysian society, calling for proactive measures to address income
inequality.

4.0.3 Differences in poverty between regions

Regional disparities in poverty levels underscore the diversity of Malaysia's social and economic
landscape. Differences in poverty rates and income levels are evident across states and regions,
reflecting differences in economic development, infrastructure and resource allocation. For
example, while urban areas may exhibit lower rates of poverty due to increased economic
opportunities, rural areas often face higher levels of poverty due to limited access to resources
and employment opportunities. These regional disparities pose challenges for policymakers in
designing targeted interventions to effectively address poverty. Context-specific approaches
tailored to the needs of each region are essential to ensure equitable development and reduce
disparities in living standards across Malaysia.

Figure 2 Differences in poverty between regions

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5.0 Examples and Case Studies

5.0.1 Successful Programs in Malaysia

In Malaysia, successful programs have played a pivotal role in poverty alleviation and socio-
economic development. One such initiative is the New Economic Policy (NEP), implemented
from 1971 to 1990. The NEP aimed to eradicate poverty and restructure society, focusing on
income generation, education, employment, and rural modernization. Land development
schemes, vocational training, and infrastructure projects were key components of this program.
Another notable success story is the Amanah Ikhtiar Malaysia (AIM), established in 1987. AIM
provides microcredit facilities to the poor, along with financial education, entrepreneurship
training, and social services. By 2014, AIM had disbursed over RM11.3 billion in financing,
benefiting rural and urban poor communities. Additionally, community development programs,
such as KEMAS and RUKUN TETANGGA committees, have been instrumental in providing
opportunities for socio-economic improvement in both rural and urban areas.

5.0.2 Effects of Government Actions on Poverty

Government actions in Malaysia have significantly reduced poverty rates and improved income
distribution. Over the years, the poverty rate has seen a remarkable decline, from 49.3% in 1970
to 0.6% in 2014, virtually eliminating extreme poverty. Government policies have also led to
more equitable income distribution, as indicated by the drop in the Gini Coefficient from 0.513
in 1970 to 0.401 in 2014. Moreover, the income share of the bottom 40% of households
increased from 11.5% to 16.5% during the same period, demonstrating improved income
distribution and reduced inequality.

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5.0.3 Challenges and Future Plans

Despite the successes, Malaysia faces ongoing challenges in sustaining inclusive growth and
addressing regional disparities. Efforts are needed to ensure that economic development benefits
all segments of society, particularly marginalized groups and those in remote areas. Regional
disparities in poverty levels persist, necessitating targeted interventions to uplift disadvantaged
regions. Corridor development initiatives aim to narrow development gaps between regions and
provide greater access to opportunities. Furthermore, Malaysia aims to mainstream the global
development agenda, particularly the Sustainable Development Goals (SDGs), into its national
policies and programs. Aligning with global objectives will help address poverty and other socio-
economic challenges effectively, ensuring a more equitable and sustainable future for all
Malaysians.

Income Share of
Year Poverty Rate (%) Gini Coefficient
Bottom 40% (%)
1970 49.3 0.513 11.5
1989 16.5 0.442 14.5
2014 0.6 0.401 16.5
Table 2 "Malaysia's Poverty Eradication Journey"

6.0 Challenges and Future Plans

Despite progress, Malaysia grapples with urban poverty and disparities in remote rural areas.
Economic crises expose vulnerabilities, necessitating social protection measures. Future
strategies must prioritize inclusive development and targeted interventions.

Investing in education and vocational training can empower individuals, while promoting
entrepreneurship diversifies income sources. Embracing technology expands economic

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opportunities, especially in rural areas. Equitable access to healthcare and housing improves
overall well-being, fostering a more inclusive society.

7.0 Conclusion

Malaysia's journey in poverty eradication reflects a concerted effort spanning decades, marked
by dynamic policies and strategic collaborations. From the inception of the New Economic
Policy to the present, the nation has achieved remarkable success in reducing poverty and
narrowing income disparities across ethnic groups and regions. Civil society, alongside
governmental initiatives, has played a pivotal role, exemplified by microfinance programs and
community development efforts. However, challenges persist, including urban poverty and the
need for sustained economic resilience in the face of global uncertainties. Looking ahead,
Malaysia's commitment to inclusive growth and the Sustainable Development Goals underscores
its determination to build a more equitable society. By addressing ongoing challenges and
embracing innovative solutions, Malaysia continues to pave the way for a brighter, more
prosperous future for all its citizens.

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8.0 References

1. "Making the Invisible Visible: Faces of Poverty in Malaysia" by ISIS Malaysia provides
an in-depth analysis of poverty and its impact on Malaysian society.
https://www.isis.org.my/wp-content/uploads/2020/04/Making-the-invisible-visible.pdf
2. The accompanying article on ISIS Malaysia's website complements the report, offering
additional perspectives on poverty in Malaysia
https://www.isis.org.my/2020/04/05/making-the-invisible-visible-faces-of-poverty-in-
malaysia/
3. "Malaysia: Success Story in Poverty Eradication" by the Economic Planning Unit,
Malaysia, outlines Malaysia's successful strategies in poverty reduction.
https://www.ekonomi.gov.my/sites/default/files/2020-02/
Malaysia_Success_Story_In_Poverty_Eradication.pdf
4. "Poverty Eradication and Income Distribution" by Ragayah Haji Mat Zin provides
scholarly insights into Malaysia's efforts to address income inequality.
https://www.taylorfrancis.com/chapters/edit/10.4324/9780203802410-11/poverty-
eradication-income-distribution-ragayah-haji-mat-zin
5. "Poverty Reduction for Sustainable Development: Malaysia's Evidence-Based Solutions"
offers research-based solutions for poverty reduction in Malaysia.
https://www.researchgate.net/publication/
317100517_Poverty_Reduction_for_Sustainable_Development_Malaysia's_Evidence-
Based_Solutions
6. The article from Business Today discusses the need for new approaches to combat
poverty in Malaysia.

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 https://www.businesstoday.com.my/2023/12/11/malaysia-needs-a-new-toolbox-to-
combat-poverty/

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