Tag: World Bank

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ASEAN Economics

[3025] Malaysia inches closer to high income status (but it is not the 2025 star…)

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.

 

Categories
Economics

[3024] Is Malaysia a developed economy now?

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).

Categories
Economics

[2850] The arbitrariness and the superficiality of Malaysia’s $15,000 high-income nation benchmark

In the past week or so, there were several news reports stating that Malaysia was regressing backward relative to the high-income country GNI benchmark of $15,000 per person by 2020. The Economic Planning Unit showed the figure fell to $9,291 in 2015 and to $8,821 in 2016, from $10,677 in 2014.[1]

From the figures alone, it is plain to see that the gap between current level and the $15,000 per capita has increased. The 2020 target was set by the government as the benchmark Malaysia needed to hit to in order to declare the country as a “high-income nation.”[2] Pemandu’s whole reason for existence is predicated on this.

But such conclusion (and the target itself) is superficial and largely a non-issue as far as economic growth is concerned. What is more important in terms of development is the levels of welfare, which is better represented by the purchasing power parity calculation, instead of the Atlas method used to calculate the GNI per capita figures in the US dollar.

There are three reasons why I claim the conclusion is superficial.

First, the $15,000 GNI per capita by 2020 target is susceptible to foreign exchange rate fluctuation. This is despite the Atlas method is designed to minimize the same fluctuation. The ringgit depreciation relative to the US dollar in 2015 and 2016 was just too big for the method to handle. Its inability to control for the fluctuation makes its output less reliable that it normally is. You can see why it does a bad job within the context of 2015 and 2016: the Atlas method controls the forex rate variation by averaging the latest three years of the relevant rates (the method does include inflation differential between countries but it is not nearly as good as the PPP). But even under normal circumstance, the Atlas method is inferior to the purchasing power parity just because the former does not adjust for domestic living costs properly. The PPP may have its own failings but its failings are considerably less serious than the Atlas method.

To understand this point further, we have to realize that for most Malaysians, earning and spending are carried out in the local currency, the ringgit. Only a small minority earn in ringgit but spend in foreign currency, among them the US dollar. So for most Malaysians, it is unclear why the size of the economy translated through the Atlas method into the US dollar is meaningful in determining the state of a country’s development level or its population welfare, apart from the fact that the World Bank uses it and that Pemandu was just following suit.

The World Bank states it is using the Atlas method for operational purposes,[3] which makes sense because the organization lends money to national governments mostly in major currencies and that the repayments are susceptible to the forex fluctuation due to currency mismatch. They need to take the forex fluctuation into account.

Meanwhile, Pemandu and Malaysia use it as a target… because the World Bank uses it for its global lending purposes done largely in US dollar. You can see the problem here. The World Bank’s and Malaysia’s purposes for using the Atlas method are vastly different. It fits the World Bank’s goal better than Malaysia’s. PPP, on the underhand, fits Malaysia’s purpose better than the World Bank’s. It is a case of using the wrong tool.

Second, even if we accept the target and the Atlas method wholly, the actual benchmark for high-income is likely lower than the $15,000 barrier. The $15,000 benchmark itself did not come from the World Bank but projected into the future by Pemandu based on figures from the international body. The latest 2017 high-income benchmark actually used by the World Bank is $12,476.[4] Pemandu had projected the figure from 2010 (if I am not mistaken), assuming the 2010-2020 growth rate of high-income countries to average 2.0% yearly. The reality is that the 2010-2017 average is only 0.2% yearly so far. At the current actual growth rate, the benchmark will be $12,563 per capita by 2020 assuming everything else remains the same. It is still a widening gap, but not as bad as when the $15,000 per capita is the target.

Third, the implications of the conclusion are outrageous, if the Atlas method completely addresses concerns over forex fluctuation: either Malaysia had run into a two-year long recession, or we had an extraordinary population boom during the same period.

But we did not have a recession. We did have a growth slowdown however. The Malaysian economy grew by 5.0% in 2015 and 4.2% in 2016. But no recession, which is a contraction of the GDP by two consecutive quarters.

And we did not have a population boom either during the two years. The size of the Malaysian population in 2015 and 2016 grew 1.4%-1.6% yearly, lower than in the previous years.

Since both did not happen (with inflation was not big enough to matter: Malaysia’s 2%-3% and in the US, 0%-1%), we must question the validity of the Atlas method in measuring the well-being of Malaysians. And by extension, it questions the ability of the Atlas method to determine the status of Malaysia as a high-income nation. The one factor that changed was the forex rate.

But ultimately, the term high-income nation itself is fluffy. There are attempts to give it concrete meaning but would crossing the not too distance line suddenly transform Malaysia into a rich country? It is never as clear as that. While Malaysia has done well compared to a lot of countries in the world, entrance to “first world” is actually harder then merely cross the line defined by the World Bank or Pemandu. Just cross over to Singapore, or visit Japan, or Australia or any of the generally recognized high-income countries. Would Malaysia crossing the GNI per capita $12,475 line suddenly make the us like those countries? Maybe someday, but the barrier will be way above the World Bank’s line.

You know a high-income country when you see one: some classifications are looser than others and many of them are arbitrary. This is the limits of mathematics and economics. So, be careful of turning a soft arbitrary line in the sand as your true north. Managing a country’s development is not like running a business.

But coming back to the original point, no, we have not regressed in terms of economic development. We have regressed in other aspects, like our institutions, but the economy has grown, contrary to what the imperfect Atlas method tells us. If you really want to make an international comparison, the purchasing power parity model is far superior than the Atlas method, especially at a time when forex fluctuation is great.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved

[1] — Page 5.The Malaysian Economy in Figures 2016. Economic Planning Unit

[2] — Page 59. Economic Transformation Programme: A Roadmap for Malaysia. October 26 2010

[3] — The income groupings use GNI per capita (in U.S. dollars, converted from local currency using the Atlas method) since they follow the same methodology used by the World Bank when determining its operational lending policy. While it is understood that GNI per capita does not completely summarize a country’s level of development or measure welfare, it has proved to be a useful and easily available indicator that is closely correlated with other, nonmonetary measures of the quality of life, such as life expectancy at birth, mortality rates of children, and enrollment rates in school. [Why use GNI per capita to classify economies into income groupings? The World Bank. Accessed March 23 2017]

[4] — For the current 2017 fiscal year, low-income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method, of $1,025 or less in 2015; lower middle-income economies are those with a GNI per capita between $1,026 and $4,035; upper middle-income economies are those with a GNI per capita between $4,036 and $12,475; high-income economies are those with a GNI per capita of $12,476 or more. [World Bank Country and Lending Groups The World Bank. Accessed March 24 2017]

Categories
Economics Politics & government

[1226] Of Wolfowitz to quit

It is only right:

Paul Wolfowitz is to quit as president of the World Bank following a bitter promotion row involving his girlfriend.

After lengthy talks with the bank’s board, Mr Wolfowitz said he would quit the global lending body on 30 June.

He had faced widespread calls for his resignation after being accused of a conflict of interest over a pay rise given to ex-bank employee Shaha Riza.

The White House, which had backed Mr Wolfowitz, said President George W Bush reluctantly accepted his decision. [World Bank head Wolfowitz to quit. BBC May 18 2007]

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

p/s — some of us are still waiting for Anwar Ibrahim to explain his involvement.

Categories
Politics & government

[1194] Of losing trust in Anwar Ibrahim

The Bernama report that tries to link Anwar Ibrahim with Paul Wolfowitz — the current President of the World Bank — is a cheap shot and has been criticized by a number of people on the blogosphere.

Nevertheless, Anwar Ibrahim will have to explain his connection to Paul Wolfowitz. This is especially so when the Ethics committee of the World Bank mentions the Anwar’s name several times with respect to Wolfowitz’s friend, Shaha Ali Riza. Please read the ethics report produced by the World Bank for more information.

At the end of the report, there is a letter which Anwar Ibrahim requested the World Bank to transfer Shaha Ali Riza to the Foundation for the Future from her previous position. Anwar Ibrahim is the chairman of the foundation.

According to the New York Times as well as the International Herald Tribune:

Her initial supervisor at the State Department was Elizabeth Cheney, whose father, Vice President Dick Cheney, has been a longtime associate of Wolfowitz. Riza now serves as a consultant to the foundation, known as the Foundation for the Future, while still drawing her World Bank salary, the State Department said.

[…]

Alison Cave, chairwoman of the bank’s staff association, said the amount of the raise and the procedures followed seemed to violate bank rules. Cave also said the records showed that Riza was to return to the bank at the higher salary level and be given a rating of “outstanding” in her performance reviews while with the foundation. [Turmoil Grows For Wolfowitz At World Bank. IHT. April 12 2007]

This link is extremely suspicious. Anwar Ibrahim must clarify his relationship with Paul Wolfowitz and in particular, his role in the matter surrounding Wolfowitz and Shaha Ali Riza.