Lies, damn lies and poverty statistics

One of the key measures of inclusive growth is the level of poverty and income inequality in Malaysia. By all measures, Malaysia’s efforts in reducing poverty are remarkable and admired by the international community. My parents grew up in poor or even hardcore poor circumstances and I grew up in a poor household. My social mobility was due to my parents living and saving responsibly for their children’s future which was enabled by the Government’s growth policies. So this is not a diatribe against the Government as I am a grateful beneficiary of the growth and poverty reduction policies since the 1970s.

Let us begin with official statistics from the Economic Planning Unit, Prime Minister’s Department, which is the authoritative source for poverty data. Malaysia’s official poverty rate for 2012 is 1.7% based on what is defined as the poverty line income (PLI) which is RM 763 per household of 4.4 persons per month for Peninsular Malaysia (we will discuss Sabah and Sarawak in a separate analysis). What this means is that a household with less than RM 763 per month to pay for food and other basic necessities such as clothing, rent, fuel and utilities, transport and communications, medical expenses, education and recreation is officially poor. Jayanath Appadurai (please refer to blogs by Kamal Salih and Charles Hector) works out that this is about RM5.80 per person per day to meet all the above needs which we all know is completely unrealistic. To be considered as hardcore poor, the same household needs to earn less than RM 430 per month which works out to a ridiculous RM 3.30 per person per day to survive on (the hardcore poverty rate for Malaysia in 2012 was 0.25%).

Let us turn to indirect estimates of poverty which are more realistic. More than a third of Malaysians earn less than RM 1,000 per month and about half earn less than RM 2,000 per month. Assuming a family of 4.4, with both parents working, the total monthly household income of RM 2,000 will enable them to spend about RM 15 per person per day. Selangor has defined the PLI as RM 1,500 per month which works out to around RM 11 per person per day which has led to about one third of the households in the state classified as poor. So a more realistic measure of poverty level income would certainly increase the poverty rate in Malaysia from 1.7% to perhaps between 20 to 30%.

Then there is the question of relative poverty. Relative poverty is measured based on income that is less than half of the median income of all Malaysians which was RM 3,626 for 2012. Based on this measure, the poverty line income increases to RM 1,813 per month which would dramatically increase Malaysia’s poverty rate to over 20%. Even more depressing, relative poverty has increased from 18.9% in 1989 to 20% in 2012 with almost no change for urban households (all data is from the Malaysian Human Development Report, 2013 unless otherwise indicated).

The picture that emerges behind the statistics is rather grim: a significant proportion of Malaysian households are in debt (for housing, appliances, vehicles, education) with very little savings and surviving from day to day. The death or illness of an income earner will quickly slip these families into poverty. The paucity of publicly available and trusted household income data and independent academic analysis hinders an objective, honest discussion on poverty and inequality in Malaysia. This is unfortunate because Malaysia has a great track record on poverty reduction but we need to take a good, hard look at whether we are in denial now.