How poor are we, really?

By Sheridan Mahavera
July 21, 2010

KUALA LUMPUR, July 21 — The government likes to boast that Malaysia has almost erased poverty. It is the one unchallenged success that is shouted out again and again to show how far we have come since Merdeka.

The line is familiar: “In 1970, 49.7 per cent of households were living in poverty. Now it is only 3.8 per cent.” Or out of 6.2 million households, only 228,400 can be classified as poor.

These 228,400 are households that earn an average of RM800 a month and below.

Is RM800 a fair cut-off point? Because it effectively means that if a household of four earns RM900, RM1,000, or even RM1,500 a month, they cannot be considered poor.

If that is the case, then why are there more and more media reports of families complaining that they cannot make ends meet even when they earn RM2,000?

How did the government calculate and decide that RM800 is the poverty line?

Jayanath Appudurai, who writes extensively on poverty for the Centre for Policy Initiatives, believes that the government’s calculations are unrealistic.

Here, he argues that we need a new standard to measure poverty — one that more accurately represents the cost of food, clothing, rent and other basic necessities, and how much it takes for an average family of four to keep themselves afloat in today’s Malaysia.

Jayanath’s assessment is based on government data in its 10th Malaysia Plan (10MP) report released in June, and the New Economic Model (NEM) that was out in April.

The Poverty Income Level (PLI) is defined as:

“An income that is necessary to buy a group of foods that would meet the nutritional needs of the members of a household. The income is also to meet other basic necessities such as clothing, rent, fuel and utilities, transport and communications, medical expenses, education and recreation.”

Plainly speaking, the PLI is how much money in a month a Malaysian household needs to meet these eight components.

Though the Government calculates different PLIs for Malaysia’s three regions, the total average PLI is RM800.

For this demonstration, Jayanath uses the Peninsula PLI of RM763.

A household living in the peninsula is considered poor only if its monthly income is below RM763.

“The government claims that it uses a World Bank standard to measure PLI. But they do not reveal the actual methodology of how they arrive at RM763,” says Jeyanath.

The World Bank standard, Jayanath says, recommends that medium-income countries should calculate PLI based on US$2 (RM6.20) per individual per day. Meaning one person would need US$2 per day in order to meet both food and non-food necessities.

If that figure were used for Malaysia, a theoretical household of 4.4 people would then need RM858 a month to not be declared poor.

The government considers a household as comprising an average of 4.4 members, says Jayanath. (Total number of households divided by total population = 4.4).

The PLI of RM763, therefore, is translated into a daily income of RM25.45 that a household needs to meet the eight components such as food, rent, clothing and fuel.

“Or, that if a member of a household earns RM5.80 a day, they cannot be considered poor. Since, according to the government, you are able to live on RM5.80 a day.

In other words Jayanath explains:

“RM5.80 is supposed to pay for three meals, transport costs, rent, recreation and the other components for ONE person in ONE day. Tell me, can a Malaysian in the Peninsula even buy three meals a day on RM5.80?

“In fact, I’d challenge our government ministers to try that,” said Jayanath

Jayanath says countries such as Britain and Australia calculate PLIs based on the median income of its households. The median income is a country’s total income divided by half.

The PLI is two-thirds of the median income.

In Malaysia the median income is RM2,830. Using this method, the PLI would then be RM1,886.

In effect, this translates into RM14.20 per day for an individual to meet all their eight needs.

“Compared to RM5.80, is not RM14.20 a more realistic figure in terms of how much one needs per day in Malaysia?”

A former finance minister had once said, repeatedly, that if we were to revise how we measure poverty, our poverty rate would not be the vaunted 3.8 per cent. He is right, technically.

Jayanath’s calculations would put Malaysia’s poverty rate at somewhere between 31 to 32 per cent.

“Our poverty level looks good on paper but woefully ignores reality. We are so obsessed with selling this story that we are a success.”

Statistics are supposed to accurately measure our economic environment, so that in this case, pin-point policies to deal with poverty can be crafted.

The government has begun scaling back subsidies so that it would only benefit those their meant for — the poor.

How is it supposed to do this if we cannot even accurately measure who the poor are?

Source: The Malaysian Insider