Malaysia’s Journey: Reducing Poverty While Tackling Unequal Access to Economic Security

A World Bank study on Malaysia’s economic mobility from 2004 to 2022 highlights significant progress in reducing poverty and improving economic security but reveals persistent regional and ethnic disparities, especially for rural East Malaysians and Bumiputera households. Targeted policies are needed to ensure equitable growth and opportunities for all.

The World Bank’s Poverty Global Department, in collaboration with researchers Gerton Rongen from Vrije Universiteit Amsterdam and Peter Lanjouw, has released a paper analyzing economic mobility trends from 2004 to 2022. Using synthetic panel data from nationally representative surveys, the study highlights Malaysia’s remarkable progress in reducing chronic poverty and improving economic security while examining persistent regional and ethnic disparities. While many Malaysians have experienced upward mobility, challenges remain for specific groups, particularly in rural areas and among disadvantaged ethnic communities.

Steady Declines in Chronic Poverty

The study reveals a dramatic decline in chronic poverty, from over 20% of the population in the early 2000s to just 2–3% by 2022. This improvement is attributed to sustained economic growth and targeted social policies, particularly in response to the COVID-19 pandemic. During the crisis, government initiatives such as cash transfers and relief packages, which accounted for 23% of GDP in 2020, helped stabilize incomes and prevent a significant rise in poverty. However, this progress has been unevenly distributed. Rural East Malaysia remains a major concern, with approximately 15% of its population still trapped in chronic poverty. Moreover, this region experiences higher rates of poverty entry and fewer opportunities for sustained upward mobility compared to urban areas in Peninsular Malaysia.

Unequal Access to Economic Security

Economic security has generally improved, with over half the population now classified as secure based on lower income thresholds. However, when higher thresholds are applied, only 30% of Malaysians achieve sustained economic security. Urban-rural disparities are particularly striking. Residents of urban Peninsular Malaysia are three times more likely to achieve economic security than those in rural East Malaysia. Ethnic inequalities add another layer of complexity. Bumiputera households, especially in East Malaysia, face higher rates of poverty and lower upward mobility compared to Chinese and Indian Malaysians. For example, nearly half of Chinese Malaysians consistently occupy the top income quintile, while only 7–10% of Bumiputera households achieve similar wealth levels. This unequal access to economic security highlights the structural barriers that continue to affect disadvantaged groups.

Relative Mobility: A Stubborn Challenge

The study also examines relative economic mobility, focusing on movements across income quintiles. It finds that despite rising absolute incomes, the likelihood of households significantly moving up or down the income spectrum remains low. About 10% of Malaysians remain stuck in the bottom quintile, while 12% consistently stay at the top, indicating entrenched advantages and disadvantages. While economic growth has raised incomes broadly, it has not fundamentally altered the relative positions of households. This limited relative mobility suggests that systemic inequalities persist, preventing many from breaking out of poverty or climbing further up the income ladder.

The Role of Government Policies

Government interventions during the COVID-19 pandemic played a crucial role in mitigating economic shocks. Relief programs helped prevent an increase in chronic poverty and offered temporary financial stability to low-income households. However, these measures were extraordinary and may not be sustainable. If social assistance policies return to pre-pandemic levels, the progress made in poverty reduction could stall, and the risk of downward mobility may increase for vulnerable groups. The study highlights the need for consistent and robust social protection programs to ensure that economic gains are not reversed during future crises.

Bridging Gaps in Economic Opportunity

Ethnic and regional disparities remain among the most significant barriers to inclusive growth. Rural East Malaysia and East Malaysia Bumiputera households face persistent challenges, with high rates of chronic poverty and frequent downward mobility. Conversely, Chinese Malaysians enjoy higher rates of upward mobility and greater economic security, reflecting historical inequalities in access to resources and opportunities. The stark contrast between urban Peninsular Malaysia and rural East Malaysia underscores the need for targeted policies to address these gaps. Investments in education, infrastructure, and social protection programs tailored to rural and disadvantaged areas are essential to bridging these divides.

The findings present a nuanced view of Malaysia’s economic landscape. While the country has achieved significant progress in poverty reduction and economic mobility, these gains have not been evenly shared. Absolute income levels have risen, but relative mobility remains limited, and structural barriers continue to hinder certain groups. To ensure more inclusive growth, Malaysia must tackle these deep-seated inequalities and provide equitable opportunities for all its citizens. By addressing these challenges, the country can build on its successes and chart a path toward a more equitable future.