Can 11MP reach inclusive growth targets, asks economist

Universiti Malaya adjunct professor Tan Sri Kamal Salh feels it is good of the government to pay attention to those who are in 'relative poverty', aside from those who are in 'absolute poverty', over the next five years, as part of the objectives of the 11th Malaysia Plan. – The Malaysian Insider pic, May 24, 2015.A prominent economist has questioned whether Putrajaya would be able to meet its target of doubling the incomes of low-earning Malaysians who comprise the bottom 40% of society in five years' time.

While Tan Sri Kamal Salih praised the focus given to this segment of populace in the recently-tables 11th Malaysia Plan (11MP), he said the target of increasing their average incomes from RM2,500 a month to RM5,000 a month by 2020 was “very tight”.

Kamal said this could be achieved only if other criteria fell into place – a strong world economy, high exports, high-paced industrial expansion and a stable government.

The last time Malaysia saw incomes shoot up was during the boom period from 1988 to 1998, a decade sandwiched between economic recessions, said Kamal, an adjunct professor at Universiti Malaya (UM).

During that period, Kamal said livelihoods were raised thanks to an average 8% growth rate every year for 10 years, one of the highest in Asia, and due to breakneck industrialisation.

“Now, we are trying to achieve the same with 5% to 6% growth a year over the next five years,” Kamal said during a talk with Malay group Pemikir in Kuala Lumpur yesterday.

“It will be very tight,” said Kamal, who is with Universiti Malaya’s Faculty of Economics and Administration.

Other experts have also questioned whether Putrajaya would meet its 11MP targets given that it failed to achieve a consistent 6% growth rate during the 10MP from 2010 to 2015.

The target was set by the federal government in the 11th Malaysia Plan launched on Thursday and is supposed to steer the country on its last leg of the march towards developed nation status by 2020.

The plan’s biggest target is achieving a national income per person of USD15,000 or RM55,500 per annum.

The plan has earmarked about RM260 billion to ensure that the economy grows between 5% to 6% per year over those five years to meet its targets.

About one third of strategies in the 11MP are focused on inclusive growth.

This includes increasing the average incomes of the bottom 40% of the populace (now called B40), who make up 2.7 million households, from RM2,500 a month to RM5,000 a month by 2020.

The government also wants to reduce the country’s GINI co-efficient, which is a measure of income inequality from 0.41 to 0.385 by 2020.

Putrajaya also wants to grow the middle class, which now consists of 40% of the populace to 45% in five years.

Kamal said the 11MP’S focus on the B40 was an encouraging sign that Putrajaya is moving away from dealing with absolute poverty alone to tackling relative poverty.

Relative poverty is a concept that has been promoted by the World Bank and the highly-regarded Malaysia Human Development Report 2013, which had been authored together with the United Nations.

Absolute poverty is measured according to a set poverty line such as RM800 per month, while relative poverty is calculated based on the median income of the populace which changes over time.

Relative poverty also takes into account the rise in living costs and access to social services relative to how much a household makes a month.

“The 11th Malaysia Plan is a good document. It’s beautiful on paper but the question is can we deliver on it?” Kamal said.

“It is not hard to statistically come up with a target and to plan. But the hardest is the execution.”

Kamal argued that the growth of the middle class would also be hampered if Putrajaya does not repair Malaysia’s stunted industrial base which has kept wages down and workers from upgrading their skills.

As industries get stuck in a cycle of wanting to keep costs low to produce low value parts, wages for industrial jobs will also remain low.

Since wages make up more than 95% of the B40 household income, said Kamal, they will not be able to move up and join the middle classes if companies continue to suppress wages.

“We are seeing that the services sector is also adopting more low value, low skill models,” said Kamal.

He argued for a re-industrialisation policy to wean Malaysian companies from their low-cost models to producing more high-value products, which would then increase wages.

This would also increase the wage share of the country’s Gross Domestic Product (GDP) to 40% from 33%, and bring Malaysia closer to becoming an advanced economy. – May 24, 2015.