POVERTY INDEX IN

MALAYSIA
Synopsis

This project has enabled UNDP to work in close collaboration

with the Government of Malaysia (GoM) to review and
redefine the Malaysian Poverty Line Income (PLI). This
partnership demonstrates that UNDP is seen as a valued,
trusted and reliable adviser and development partner of the
Malaysian Government.

Objectives

The objectives of this project were to assist and strengthen

the capacity of the Economic Planning Unit, in the Prime
Minister’s Department of Malaysia to:
􀁺 Better monitor trends and patterns in poverty by defining
a new poverty threshold;
􀁺 Improve poverty policy formulation by broadening the
range and details of poverty measures in the Ninth
Malaysia Plan; and
􀁺 Train government staff and other stakeholders in the
construction, analysis and interpretation of poverty
measures.

Brief Description

Although the incidence of poverty is low in Malaysia, pockets

of poverty continue to exist with high incidences of poverty
among specific ethnic groups and localities. As the overall
incidence of poverty continue to decline to a single digit
figure, efforts to further reduce poverty have become more
challenging, particularly in reaching the more remote areas
that contain pockets of poverty.
At the same time, with increasing urbanisation and
demographic shifts, including within households, the
adequacy of current poverty measures needed to be
reviewed, especially as many of these poverty measures had
been devised when Malaysia was an agricultural society.
Recognising the challenges ahead of Malaysia in eradicating
poverty, the Government of Malaysia and UNDP embarked
on an exercise to redefine the poverty line income, which was
set in the 1970s.
The Role of UNDP: UNDP assisted by drawing on its global
knowledge network to share the experiences of other
countries in poverty line income measurements with the
Government of Malaysia through the Economic Planning Unit
(EPU). In addition, UNDP provided expertise to assist the
Government to redefine its PLI, which was first measured in
1977.
The PLI, established in 1977, was based on a ‘basic-needs’
framework, i.e. nutritional requirements formed the basis of
basic food needs and essential expenditures on non-food
items were calculated in a similar fashion. The PLI was
constructed for a household of five persons: two adults (male
and female aged between 20 - 39 years) and 3 children (of
either gender, aged 1-3 years, 4-6 years and 7-9 years). Over
the years, the Malaysian PLI was updated using a common
price index. Some of the weaknesses of the 1977 measure
were identified as follows:
􀁺 The measure made no allowance for spatial price
differentials, e.g. urban-rural differentials, inter-state price
variations;
􀁺 The method meant that poverty profiles by key subgroups
were not possible if the demographic
assumptions behind the representative household did
not hold for the sub-group. For example inter-ethnic
comparisons would be invalid because of well-known
ethnic variations in household size and composition;
􀁺 The method precluded the use of other key measures of
poverty, notably the poverty gap and measures of the
‘severity’ of poverty;
􀁺 By imposing a common price index when updating the
poverty line, no allowance was made for differential food/
non-food and spatial inflation rates.
In 2004, over a period of six months, a new poverty line
income was derived to improve on the 1977 PLI. This exercise
involved detailed analysis and usage of Household IncomeSurveys and Household Expenditure Surveys
conducted by
the Department of Statistics for the Economic Planning Unit.
The new PLI methodology improved the 1977 methodology
in the following aspects:
􀁺 The food PLI was revised to reflect changes in the energy
requirements recommended in the FAO/WHO/UNU
interim report on human energy requirements. The
energy requirements are met in a food basket that is
based on the Malaysian Dietary Guidelines of 1999;
􀁺 The PLI (both food and non-food) reflects state and
urban-rural variations in food and non-food prices;
􀁺 Although a PLI for a representative Malaysian household
was calculated for presentation purposes, the updated
methodology allowed for a PLI to be calculated for each
household in the Household Income and Household
Expenditure Surveys. This PLI will take into account the
household’s size and demographic structure and make
some allowances for variations, across state and stratum,
in household non-food preferences;
􀁺 The newly defined PLI allows for economies of scale in
certain household needs, most notably housing
expenditures;
􀁺 The new PLI facilitates the preparation of detailed and
meaningful poverty profiles. Comparisons on poverty
measures are now possible for key sub-groups, e.g.
ethnicity, state, urban-rural, occupation/industry/age of
household head, size of household, etc. This assists in the
identification of groups vulnerable to poverty;
􀁺 With the new PLI, measures of poverty can be calculated
using consumption or income since both are available
in the Household Expenditure Surveys. Poverty measures
based on income can be derived from the more frequent
Household Income Survey.
Since redefining the new poverty line, UNDP has assisted in
the organizing of training workshops to strengthen and build
the capacity of GoM officials in addition to academia in
utilizing this new PLI. The newly defined PLI methodology is
currently being used and reported in Malaysia’s latest five year
Development Plan, the Ninth Malaysia Plan 2006-2010.
Lessons Learnt and Replicability
The Right People: Having the right people, i.e. key ministries
and agencies, to keep pace with developments in poverty
measures are recognised as critical. Having a key group of
people within the GoM who understand the intricacy and
implications of the redefined PLI and other related poverty
measures is important to ensure that the users and
implementers at the grass roots level fully understand and
can correctly apply the new PLI methodology.
The Importance of Educating a Wide Constituency of
Stakeholders: It is important to educate a wide range of
stakeholders on the redefined PLI. Therefore, UNDP plans to
work with the Government of Malaysia to organize relevant
and appropriate seminars targeted at NGOs and other
relevant institutions on issues related to the new PLI and other
poverty measures to enhance their understanding.
Way Forward: UNDP will continue to work with Government
of Malaysia in developing the capacity of the Government to
produce poverty measures that can be used for better
targeted strategies and programmes for the poor.
Project Information

Duration
2 years (July 2004 – ongoing)
CO Focal Points
Tsung-Ping Chung, Programme Manager
chung.tsung-ping@undp.org
Website
http://www.undp.org.my/index.php?navi_id=188
Partner
Economic Planning Unit, Prime Minister’s Department
MYFF Service Line
Pro-Poor Policy Reform to Achieve MDG Targets