As Malaysia sets its sights on high-income status by 2028, the road ahead is filled with bold goals—and potential economic, demographic, and governance hurdles.
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15 Nov 2024
6 Min Read
Afrina Arfa (Alumni Columnist)
As Malaysia sets its sights on high-income status by 2028, the road ahead is filled with bold goals—and potential economic, demographic, and governance hurdles.
Can Malaysia cross the threshold into high-income status by 2028? This bold ambition, recently set forth by the Malaysian government, has elicited both expectation and debate. For over five decades, Malaysia has maintained its classification as a middle-income country, moving from lower- to upper-middle-income in 1996—a shift driven by robust economic growth and rapid urbanisation fuelled by industrialisation policies introduced in the 1980s. The government now believes the country's long-awaited transition to high-income status is finally within reach, strengthened by the current economic growth trajectory.
According to the World Bank's classification, an economy is defined by its Gross National Income (GNI) per capita—the income earned by its population. Lower-middle-income economies have a GNI per capita between US$1,136 and US$4,465; upper-middle-income economies have a GNI per capita between US$4,466 and US$13,845; and high-income economies have a GNI per capita of US$13,846 or more. As of 2023, Malaysia's GNI per capita stood at US$11,970, positioning it close to breaking free from the middle-income trap. However, achieving high-income status requires more than just favourable growth projections; it demands a detailed analysis of the critical factors determining its feasibility.
In May 2023, Rafizi Ramli, the Malaysian Minister of Economy, expressed optimism about the country's prospects for achieving high-income status within the next five years. Over a year later, in October 2024, Apurva Sanghi, the World Bank's Lead Economist for Malaysia, echoed this sentiment, affirming that Malaysia is on track to reach this ambitious milestone. While the country's economy slowed to a growth rate of 3.6% in 2023, down from 8.7% the previous year, it is projected to recover to between 4.5% and 5.5% in 2024, with stable growth forecasted between 4.0% and 5.0% for the following year.
A major contributor to Malaysia's growth forecast is the country's involvement in sectors such as oil and gas (O&G), electrical and electronics (E&E), and information and communication technologies (ICT), among others. The O&G sector remains crucial to the economy, supporting domestic and regional value chains, while the E&E sector continues to supply major markets like China, the United States, and Singapore. Additionally, under the new Industrial Master Plan 2030, Malaysia aims to transform into a high-technology nation and establish itself as a dynamic ICT hub in Southeast Asia. These sectors, alongside strategic fiscal management, will drive sustained economic growth. However, beyond Gross Domestic Product (GDP) growth, achieving high-income status will also depend on the valuation of the ringgit.
According to Bloomberg data, the ringgit averaged 4.0203 against the US dollar in 2020, 4.1665 in 2021, 4.4045 in 2022, and 4.594 in 2023. Had the ringgit maintained its 2020 rate rather than weakening in subsequent years, Malaysia's GNI per capita of US$11,830 in 2022 would have been between USD$12,961 and US$13,518—bringing it closer to the US$13,846 threshold for high-income status. Nevertheless, the ringgit is projected to strengthen to 4.20 by the end of the year.
Ultimately, Malaysia's achievement of high-income status is contingent on two critical factors: sustained economic growth and a stable or strengthening ringgit. However, economic shifts and unforeseen disruptions could derail the current trajectory. According to the 2021 World Bank report, the country could achieve high-income status by 2025 if the ringgit-US dollar exchange rate stabilises at RM4. Stronger GDP growth and a higher exchange rate could accelerate this milestone to 2024, while weaker GDP growth and a lower exchange rate could delay it until 2028. Currency volatility—combined with global demand fluctuations and external factors—poses a significant risk to Malaysia's pursuit of high-income status.
The announcement of Malaysia's pursuit of high-income status has sparked a sense of renewal in a country long caught in what many refer to as the 'middle-income trap'. While Malaysia is painfully close to escaping it, the middle-income trap refuses to let go. When asked if the ringgit's weakening against the US dollar was preventing the country from crossing the high-income threshold, Indermit Gill, Chief Economist of the World Bank Group, emphasised the need to address internal challenges rather than blaming the strength of the US dollar. He pointed out that currencies often weaken when countries fail to implement the necessary reforms.
External factors aside, an internal factor impacting Malaysia is the underutilisation of its workforce. Despite government initiatives aimed at improving both education and job-specific skills, employment challenges persist. As of the third quarter of 2024, about 1.95 million Malaysians are underemployed, working in roles for which they are overqualified, while 547,900 persons are unemployed, equating to an unemployment rate of 3.2%. These challenges limit the country's ability to realise its full economic potential, as a significant portion of the workforce is not contributing at its highest capacity, which can slow productivity and overall economic growth.
An ageing population is another critical factor shaping Malaysia's economic future. According to the Department of Statistics Malaysia (DOSM), the country is expected to become an ageing nation by 2030, with those aged 60 and over accounting for more than 15% of the total population, and an aged nation by 2040, at 17.3%. While Malaysia is predicted to achieve high-income status by 2028—just two years before becoming an ageing nation—the shrinking working-age population undermines the country's growth potential and macroeconomic stability. Although crossing the high-income threshold remains the goal, there is a risk that, without sustainable reforms, Malaysia may struggle to maintain this status in the long term.
Malaysia's economy has long depended on natural resource exports, but diversifying into sectors such as technology, renewable energy, and advanced manufacturing can help mitigate the implications of an underutilised and shrinking workforce. In line with this direction, Rafizi noted the government's commitment to supporting the digital ecosystem and advancing renewable energy initiatives. Additionally, to address employment challenges, the government plans to create two million additional high-skilled jobs.
As part of this effort, several government blueprints, including the New Investment Policy (NIP), New Industrial Master Plan (NIMP) 2030, and National Energy Transition Roadmap (NETR), have been introduced to attract investments that stimulate the creation of high-skilled jobs in these emerging sectors. However, as demand for a skilled workforce rises, the government must ensure there is a sufficient supply. This can be fulfilled through education and training programmes developed in collaboration between the government, the education sector, and the relevant industries. Efforts to address skills mismatches are also underway, with initiatives like the Penang Skills Development Centre (PSDC) and the Selangor Human Resource Development Centre (SHRDC).
Above all, economic stability goes hand in hand with political stability. Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi stated that substantial progress, particularly in economic growth, has been witnessed in the country since the establishment of the unity government two years ago, partly facilitated by the political stability attained. However, as with any country, the political landscape is sensitive to shifts which could disrupt this stability. With the next elections scheduled for early 2028, it remains uncertain whether they will affect the country's goal of achieving high-income status that same year.
Malaysia's aspiration to achieve high-income status by 2028 reflects bold ambition amid a complex interplay of economic, demographic, and governance factors. While the government is hopeful, inspired by projections of a stable economy and strong currency, significant challenges remain on the road ahead. Statistics alone cannot fully capture the country's realities; therefore, the government must prioritise implementing structural reforms and investing in its workforce. Ultimately, achieving high-income status is only the first step; sustaining it will be a long-term, ongoing journey.
Afrina Arfa is a Bachelor of Finance and Economics (Honours) alumna of Taylor's University. She spends her time indulging in economic news, hoping to inspire others to think beyond the constraints of society.