15 - High Cost of Living and Social Safety Nets for Low Income Groups in Urban Sarawak, Malaysia

Summary

Steady economic growth in the last four decades in Malaysia has successfully resulted in a decline of poverty incidence from 52.4 per cent in 1970 to 6.1 per cent in 1997 (Nair 2005), though regional, ethnic and rural-urban disparities remained. However, due to the impact of the 1997 Asian financial crisis, poverty incidence rose for the first time to 8.5 per cent in 1998 (EPU 2001). Nevertheless, the government managed to restore the economy by introducing strict fiscal policy, stimulating the market, and stabilizing the financial market (JBIC 2001). Consequently, the incidence of poverty was reduced to 5.7 per cent in 2004 and then to 3.6 per cent in 2007 (EPU 2009a).

However, the recent spike of inflation threatens to push low-income families in Malaysia below the poverty line. Based on a Bank Negara Malaysia (2008) report, the inflation rate in Malaysia as measured by consumer price index peaked in the third quarter of 2008. The inflation rate moderated to 3.9 per cent in January 2009 from its elevated level due mainly to the series of downward fuel price adjustments by the government and the more moderate increase in food prices (Bank Negara Malaysia 2009). However, declining inflation only means a declining rate of increase of price level. The price level of goods and services remains very high and rising, implying a continuously higher cost of living, even during recession. On the other hand, the GDP growth rate in Malaysia in 2008 (at 2000 constant price) was 4.6 per cent. Due to the recent global recession, the growth rate dropped drastically to –6.2 per cent in the first quarter of 2009 and improved slightly to –3.9 per cent in the second quarter of 2009 (Department of Statistics 2009).

With this rising cost of living and declining growth rate, it is surmised that low-income groups, particularly those with large families in urban areas, feel the pinch. According to studies conducted by Ragayah (2002, 2004), urban households were more affected by the rising commodity prices compared to those in rural areas as the latter were more able to diversify their income sources and to turn to local food production to cushion the effects of rising costs.