October 10, 2025
PETALING JAYA – As Malaysia edges closer to its long-delayed goal of high-income status, economic mobility remains elusive – with over half of the poorest 20% of the population still trapped at the bottom, exposing the structural inequality shadowing its growth story.
The Statistics Department reported this week that the Gini coefficient, a measure of income inequality, fell to 39 in 2024, its lowest in five decades.
However, the World Bank said this is still “notably higher” compared with recently transitioned economies (a mean Gini index of 31) and established high-income countries (a mean Gini index of 30).
“Malaysia is on the cusp of attaining high-income-country status, yet the prevailing level of inequality suggests the benefits of high-income prosperity remain inaccessible to a substantial portion of the population,” it said in a report.
Economist Geoffrey Williams said the main factors behind Malaysia’s limited income mobility are not due to economic factors but social, cultural and educational factors.
“In societies where low income is accepted as a fact of life, ambitions for high income are held back.
“Cultural norms that force children to stay in poor households to care for their families also perpetuate intergenerational poverty.
“Likewise, when low income denies access to quality education or pushes children into work early, intergenerational poverty and low income mobility persist.
“To drive greater income mobility, these social and cultural attitudes need to be broken down, and access to continuous quality education needs to be improved,” he told StarBiz.
According to the World Bank, Malaysia’s income mobility remains limited at the bottom, with more than half of those in the poorest 20% remaining at the bottom, while nearly two-thirds of those in the richest 20% are likely to retain their position at the top.
It said that without further efforts to address inequality and enhance economic mobility, around six in 10 Malaysians could still have incomes below the high-income threshold (gross national income) per capita of more than US$13,935 when the country achieves high-income status.
Despite noting the improvement in reducing income inequality, the Statistics Department also highlighted that key differences remain.
It said inequality is multi-faceted and reflects gaps in education quality, a labour market split between high and low-skilled jobs, and big differences between urban and rural areas – especially in states like Sabah and Sarawak.
On average, rural households continue to lag behind, earning a median income of RM4,588 – roughly half the RM8,139 recorded in urban areas.
UOB senior economist Julia Goh said persistent income inequality and low mobility could undermine the country’s overall growth trajectory as it approaches high-income status.
From a fiscal standpoint, Goh said the government may face rising demand for subsidies, welfare and redistributive policies, which could strain public finances if not matched by productivity gains.
“This may complicate policy implementation, especially in reform-heavy areas,” she said.
Goh said income inequality remains sticky due to weak social mobility and structural barriers.
This is especially in early-life disadvantages and unequal access to education and jobs.
“True high-income status requires inclusive development – not just higher income per capita.
“While Malaysia’s push toward high-income status is promising, it must translate into improved living standards and inclusive growth,” she said.
As it is, disparities in access to essential services persist, particularly in underserved areas, Goh said.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the country has made some progress, with the narrowing of the income gap between high and low income as reflected by the Gini coefficient.
“Measures such as cash transfers programme, reduction in income rate by 2% for taxable income of between RM35,000 and RM100,000 a year, as well as spending on education, healthcare and infrastructure have allowed social upward mobility to occur,” he said.
That said, Afzanizam said on a relative basis, especially with the advanced and Scandinavian countries, it could suggest that more still needs to be done.
For instance, by providing fair opportunities for Malaysians to participate in business and ensuring access to the right education and training channels to help them to scale up.
“This matter is always a work-in-progress, as narrowing the income gap is a structural problem that requires various policies and robust coordination among the public and private sectors,” he said.
Williams concurred that lowering income inequality requires a whole-of-society approach and is not solely a government matter.
“The only realistic option the government has is through redistribution; taking from the rich and giving to the poor.
“This has massive pushback from the rich,” he said.
Another way, Williams proposed, is by redistributing subsidy rationalisation savings through a Universal Basic Income payment of RM100 per month for all 22 million adult Malaysians.
“This would cost RM11bil on top of the existing Sumbangan Tunai Rahmah-Sumbangan Asas Rahmah budget of RM15bil and can be covered from the estimated RM17bil from subsidy savings,” he said.
On the other hand, Goh said support in the form of community-based programmes that combine basic financial education and vocational training for micro, small and medium enterprises and rural entrepreneurship could help diversify income sources and ease income inequality and economic mobility challenges.
With over 60% of income inequality linked to inequality of opportunity stemming from predetermined life circumstances rather than individual choice, the World Bank said strengthening equal opportunity by improving access to quality education and healthcare from an early age is crucial.
“Although access to basic services has improved, closing the quality gap is essential for growth and equity, enabling all individuals to build quality human capital.
“Aligning skills development with the creation of high-skill employment opportunities is also necessary to boost labour income and economic mobility by enhancing productivity,” it said.
The World Bank added that a combined series of revenue and spending reforms could reduce inequality in Malaysia by an additional four percentage points, positioning Malaysia above the upper-middle-income country average and closer to high-income countries.
“Strengthening the social protection system by setting strategic spending priorities, improving targeting across the income distribution, and reducing fragmentation to improve efficiency is crucial to reduce inequality,” it said, noting also that increasing fiscal space, such as by broadening the tax base and phasing out untargeted subsidies, is essential to finance greater equity-improving investments, particularly in education and healthcare.