World Bank projections in 2018 indicate that Malaysia is likely to transition from an upper-middle income economy to a high-income economy within the next 3-5 years as high rates of growth continue to propel average incomes upwards. This graduation will be an important marker in Malaysia’s development journey, as the country has witnessed a transformation in living standards within a generation, reducing dollar-a-day poverty to just a fraction of one percent of the population. It also, perhaps, will put to rest longstanding fears that Malaysia is at risk of becoming stuck in the “middle income trap”.
Yet, the transition to high-income country status also raises a number of questions in terms of both the quality of growth, and its sustainability—especially as Malaysia increasingly looks to compare itself with high-income rather than upper middle-income comparators. And, despite high rates of economic growth, there is a growing sense that the aspirations of Malaysia’s middle-class society are not being met, including with regard to the creation of a sufficient number of well-paying and otherwise high-quality jobs. Concerns over the extent to which the proceeds of growth are being shared between the top and bottom ends of the income distribution are also becoming more apparent. And, as the country exits that growth period when factor accumulation was a key driver, and increasingly looks towards more knowledge-intensive and productivity-driven growth, closer to the technological frontier but with an aging society, it is clear that a different set of policies and institutions might be needed for a high-income Malaysia.