Page 9 - WELFARE IN MALAYSIA ACROSS THREE DECADES: THE STATE OF HOUSEHOLDS 2020 PART 1

EXECUTIVE SUMMARY

The positive story over three decades

The narrative of progress for Malaysian households on the whole is a positive one. Over the three
decades, the improvement in households’ welfare has been linked very closely to the economic
development and transformation of the nation. With a combination of economic growth and
distribution policies, social welfare improvements have been significant.

Household income, as a share of gross domestic product (GDP), constituted 45.7% in 2019, a
meaningful rise from 35.9% in 1989. Behind this number, the average household income more
than tripled in real terms from RM2,580 in 1989 to RM7,901 in 2019. Meanwhile, the median
income also rose substantially from RM1,801 to RM5,873.

As expected, these income gains increased household consumption spending, contributing to
a better standard of living for households. Consumption patterns have also changed, with greater
spending on items traditionally described as discretionary, such as in communications, and
recreational and cultural activities.

Absolute poverty declined from 16.5% in 1989 to 5.6% in 2019, while income inequality
moderated, as measured by the Gini coefficient. Growth across income groups show that
economic growth has generally been pro-poor, with households in lower deciles recording higher
income growth rates compared to those in higher deciles.
On the Bumiputera affirmative action front, the scale and scope of the government’s effort have
broadened, from the focus on financing, training and equity participation during the 1990s, to a
more concerted effort in strengthening investment capabilities and increasing property
ownership as well. In the last decade, Bumiputera household income grew faster than other
ethnic groups, leading to smaller ethnic gaps.

Meanwhile, average and median incomes increased in all states and federal territories during
the last three decades. This broad progress was achieved despite many challenges and
setbacks, including various external developments beyond Malaysia’s control, including the Asian
Financial Crisis (AFC) and Global Financial Crisis (GFC), which adversely affected both national
and household income growth.

However, moving forward, challenges remain. While it is important to acknowledge the
successes we have achieved, we must be aware of the daunting challenges ahead of us, as outlined
in the following key takeaways.

Moderating household income growth, slowing economy

In the three decades from 1989 to 2019, the rate of growth in household income moderated.
Mean and median household incomes grew fastest during 1989–1997, but the pace fell by about
half during 1999–2007. While growth recovered slightly during 2009–2019, the rates was lower
than before the AFC, reduced by slower growth after 2014.

viii KHAZANAH RESEARCH INSTITUTE