upper-middle income – the _

Yesterday, the World Bank updated its database to include the new 2025 datapoints. The updates also redefined the institution’s income classifications.

The data shows what is expected: Malaysia has indeed made further progress towards attaining high income status. In fact, Malaysia is now the closest it has been to being reclassified upward. In 2025, Malaysia’s GNI per capita (Atlas method) was recorded at 86.1% of high income threshold, which represents 2.5-percentage point improvement from 2024 (83.6%). The last peak was in 2019 when the ratio was 85.8%.

Judging by events this year so far, despite challenges, I am willing to bet that the upward momentum will continue in 2026. Still, there is some ways to go and the more interesting question is, when would Malaysia graduate up?

The easiest—but not the most realistic—way to estimate that is to assume a straight line trajectory: at 2.5-percentage point ratio increase per year means Malaysia would need about 6 years to get there, i.e. 2031.

Yet, that straight line assumption unlikely to hold. Recent strong growth rates, wide inflation differentials between Malaysia and the world as well as an ever strengthening ringgit would not be easy to replicate over that period.

So, it would likely take longer than 6 years. If I were to give a target, the earliest is by the middle of the next decade. The latest, 2040.

Racing against others

Malaysia is not the only one moving up in the world. Several economies have overtaken Malaysia over the past decade or so and this could be understood by looking at Malaysia’s ranking. In 2025, Malaysia was the 88th richest economy based on GNI per capita (Atlas) calculation. In 2010, Malaysia was the 80th richest (out of 200+ economies). Eight economies have shot past Malaysia within that timeframe.

None of these economies is more impressive than China. If Malaysia is on the cusp of reclassification into high income category, then China’s fate feels inevitable with its ratio at 99% in 2025. China surpassed Malaysia’s GNI per capita in 2020 during the the heights of Covid-19 pandemic and the Malaysian political crisis. Malaysia has been playing catch-up ever since and has recently got its act together.

More progress in the neighborhood

But in the latest data release, Malaysia and China are not the stars of the year.

The stars are the Philippines and Vietnam. In 2025, both for the first time have been reclassified upward from lower-middle income to upper-middle income.

With the graduation of the two, that means there are only Cambodia, East Timor, Laos and Myanmar left in the lower-middle income group. Of these four, Cambodia is the next candidate for graduation. Myanmar, of course, is at war with itself.

That said, Indonesia could lose its status as an upper-middle income economy if the trouble there persists. The steep fall of the rupiah is something to watch out. Even so, the country’s 2025 ratio increased, which shows a kind of resilience the financial markets tend to ignore.

The crazy actually rich Asians

On the other side, Singapore and Brunei are obviously up there.

But Brunei is another economy to look out for. For some years now, the economy has been struggling. In my mind, its excessive reliance on petroleum production (which is declining), limited progress on economic diversification and the pegging of the Brunei dollar to the Singaporean dollar are the primary sources of their economic pain.

Malaysia has dreamed of joining a class of rich industrialized economies since the 1990s. Initially, it was an aspirational goal with nebulous metrics in the form of Wawasan 2020 but by the late 2000s and early 2010s, the World Bank’s definition of high-income economy was adopted as something concrete. During the 2010-2014 period, it felt like Malaysia was on the cusp of being reclassified as such. By 2014, Malaysia’s income was 85% of the high-income threshold and some in the government believed it was reasonable to expect Malaysia to become a high-income economy by the end of the decade.

But it as turned out, attaining that label is not that easy. Growth in the real world is never so linear. After making rapid progress for much of history, since 2014, the ratio of Malaysia’s gross national income (Atlas method) to the World Bank’s upper-income definition has stagnated within the 80%-85% range as shown in the chart below.

The weakness of the ringgit against the dollar was the reason the stable ratio (forex rate is a proxy to other troubles in the real economy, domestic or otherwise, which I will not touch here). So much so that some would think Malaysia was suffering from the middle-income trap, a phenomenon that describes an economy that appears to have lost steam after successfully joining the middle-income ranks.

Now a decade later, the same optimistic conversation has returned as Malaysia’s prospects of graduating is brightening up yet again. Economic growth has been going strong (Malaysia is a clear winner in the ongoing trade war between China and the US), inflation is low relative to other places (subsidies and price controls) and the currency is doing rather well in 2025 and 2026 (thanks to Trump’s chaotic administration). These three are exactly the things that determine whether Malaysia passes as a high-income economy, as far as the Atlas method is concerned.

We cannot see progress of 2025 yet because the data is not ready but optimism and progress could be seen through a slightly different lens. When Malaysia’s GNI per capita is compared to OECD’s median (OECD is mostly a class of rich economies where the 2024 GNI per capita median was roughly $41,000 versus the World Bank’s high-income lower limit of approximately $14,000), we can observe the improvement since 2022. For 2025, the ratio would likely be higher than 2024.

Whether Malaysia makes it soon or not (…the ringgit may yet weaken), I have always taken the position that crossing the line is an act of arbitrariness while the usefulness of the Atlas method itself can be quite narrow. It is unclear what changes materially when a country crosses the line (the classification itself is used by the Bank for inform its lending policy but for awhile now, the whole exercise has taken a life of its own). There is really no medal to be won, except a pat on the back, some glowing praising articles in the global press (and investment banks’ notes) and talking points for some roadshows abroad. Crossing the line arises from an act so marginal that if you ask the typical persons walking the Malaysian streets, it would be hard to convince them that they are collectively rich this year, but was just a middle-classer the previous year.

Additionally, as far as the World Bank classification is concerned, Malaysia sits at the margin, snugging between upper middle-income and high-income classifications. This can make the discussion whether Malaysia is high-income economy more the difficult than it should. There are convincing arguments to be made for and against.

Reversed boiling frog syndrome

When we are too close to the ground and our reference point is too close to the present, any improvement from the day before would feel marginal. We would not feel it unless there is a drastic change and drastic change usually comes in the form of crisis. Rarely would it involve improvement: it is much easier to destroy than to build.

I was thinking of the reversed boiling frog syndrome lately because I have been observing a trend where foreigners on social media rave about Malaysia. In the Indonesian side of the cyberspace, there appears to be a kind of Malaysia-envy where many seem to be convinced that Malaysia is a developed economy after experiencing Kuala Lumpur or even George Town. I have seen Filipinos expressing the same sentiment.

For them, perhaps, Malaysia could feel and look like an advanced economy. Again, Malaysia is snugged between upper middle-income and high-income classes. This makes Malaysia quite different from most other upper middle-income economies. For citizens of those countries, Malaysia could feel like a high-income economy after all, despite sharing Malaysia’s income category.

Yet, there are other foreigners that seem to think so too. When Trump was in Kuala Lumpur for the Asean Summit last year, more than a few Americans who were amazed at infrastructure Malaysia has and these facilities that Malaysians take for granted and would more often than not dismiss them as a marker of progress.

Convergence, in a way

Those feelings expressed by foreigners who live farther away from the ground with time reference more distant from the present do suggest some useful dimension in thinking whether Malaysia is a developed economy.

All measurements are imperfect but all of them do say something in their own way. When we shift away from GNI Atlas method and turn to GDP PPP that attempt to control differences in living costs, there is a convergence happening. In the chart below, it compares Malaysia’s GDP per capita against OECD’s median and from it, there is a stronger case of convergence, which is to say Malaysia is getting there.

But of course, as somebody once told me, you cannot eat your PPP (you cannot eat Atlas method too but it is more edible: a Malaysian that travels abroad would likely be concerned with the foreign exchange than PPP calculation).