Creating pathways for inclusive and sustainable development in an Upper Middle-Income Country

In conjunction with Malaysia's Independance Day (Hari Merdeka), celebrated on 31 August each year, UNDP Malaysia Resident Representative (a.i.) Manon Bernier reflects on her journey and observations in supporting the nation's aspirations.

August 28, 2024

a castle surrounded by a body of water — Nina Samat / Unsplash

This blog is written by Manon Bernier, Resident Representative a.i, Malaysia, Singapore and Brunei Darussalam.

I was appointed as Deputy Resident Representative to UNDP Malaysia at the end of 2020. When I received the appointment letter, the first thing that came to my mind was the image of the Petronas Towers, the vibrant finance sector and the well-developed infrastructure in Kuala Lumpur. Malaysia is often hailed as an example of a country that has successfully diversified its economy from one that is predominantly agricultural and commodity-based economy to a robust manufacturing and service sector. This economic transformation has also led to impressive outcomes in absolute poverty reduction and human development. I asked myself, then, what value add can UNDP bring to an Upper Middle-Income Country (UMIC) like Malaysia? Four years down the road, here’s what I have learned.

a lit up city at night with Petronas Towers in the background — The iconic Petronas Twin Towers.

Ben Chung / Pexels

Addressing pockets of development challenges requiring focused interventions

Malaysia has demonstrated an impressive economic trajectory, with an average growth rate of 5.4% since 2010 (1) and consistently ranks as one of the top economic performers in the region. Additionally, Malaysia scores relatively high on human development, with a score of 63 (2), which falls into the high human development category. Despite these accomplishments, Malaysia continues to struggle with the challenge of escaping the middle-income trap to achieve high-income status; the country was first classified as a UMIC in 1996 (3) .

For example, while the national hardcore poverty rate is at 0.2% (4), a robust poverty measure such as the Multidimensional Poverty Index (MPI) demonstrates deprivations beyond income measures. The MPI was developed by UNDP and the Oxford Poverty and Human Development Initiative to introduce a more comprehensive picture of how people are affected by a diverse range of non-monetary poverty.

Malaysia’s MPI was first introduced in the mid-term of the 11th Malaysia Plan. As the country progresses towards becoming a high-income nation, it is timely to adopt more progressive indicators that align with Malaysia MADANI. In this regard, UNDP is supporting the Government of Malaysia in revising the National MPI indicators. By examining multiple deprivation dimensions including digital inclusion, access to healthcare, and education, financial security, the MPI helps policymakers identify poverty hotspots and develop more effective interventions for challenges that require focused interventions.

Enabling and scaling solutions to common challenges such as climate change and biodiversity loss

Regardless of income levels, all countries globally will be affected by climate change and biodiversity loss. In a UMIC setting such as Malaysia, addressing these challenges requires enabling and scaling solutions, as well as fostering collaboration among various stakeholders to achieve climate targets and conserve biodiversity. Malaysia has set high ambitions on climate change, aiming to reduce its greenhouse gas emissions intensity of GDP by 45% by 2030, compared to 2005 levels (5). Additionally, Malaysia pledged to maintain at least 50% of its land mass under forest and tree cover, in line with the Rio Earth Summit in 1992 (6). The challenge for many countries is translating these ambitions into reality.

To support these efforts, UNDP leverages its global network to share policy options with the Malaysian Government. One example is the Ecological Fiscal Transfer (EFT), introduced under BIOFIN, a UNDP global programme that helps countries develop and implement Biodiversity Finance Plans. Drawing on experiences from countries like Brazil, China, France, Portugal, and India, Malaysia first introduced EFT in the 2019 Annual Budget and has increased its allocation every year. EFT transfers funds from the federal government to state governments based on protected land and environmental performance criteria, creating a financial incentive for states to prioritize environmental stewardship. From 2019 to 2024, over $120 million was allocated through EFT to protect and expand forest reserves and protected areas, resulting in 350,000 hectares of new protected areas, including 90,000 hectares of terrestrial and 250,000 hectares of marine protected areas (7).

a forest with a city in the background — The view from Penang Hill, Malaysia.

Fidelia Zheng / Unsplash

UNDP continues to work with the Malaysian Government to strengthen the effective implementation of the EFT while exploring avenues to leverage private sector financing to complement the federal allocation. Although various instruments and innovations exist, the next challenge is to scale up these efforts to create outcomes and impacts that match the stated ambitions.

Supporting Anticipatory, Agile and Adaptive Governance for a more dynamic future

Over the last few years, the resilience of institutions globally has been put to the test. According to the recent UNDP trends report, we have witnessed unprecedented challenges such as economic disruptions, political instability, and environmental crises that have stretched institutional capacities to their limits. This time of polycrisis is forcing us to move from linear thinking to a more holistic approach that recognizes the interconnections between social, economic, and environmental systems. This shift is crucial for enhancing our ability to adapt and respond effectively to ongoing and future uncertainties.

Malaysia is not immune to this polycrisis. As a small and open economy, the recent pandemic and conflicts demonstrate how interconnected Malaysia is with the global economy. This includes high rates of inflation as well as increase in the bill for subsidies due to the increased costs of fuel. As a result, these are often most keenly felt by the most vulnerable communities in Malaysia.

To facilitate understanding of these complexities, and by leveraging our foresight capabilities, UNDP partnered with Malaysian Industry-Government Group for High Technology (MIGHT) to explore the intersection between two megatrends — climate change and Malaysia’s changing demographic — and map out the future implications of these shifts on two socio-economic areas; firstly, the nation’s economic structures and the labour market, and secondly, the well-being of the elderly and their families. Through the report: Transitioning Futures, Anticipating Change: Socio-economic Futures of Malaysia's Climate & Demographic Transition, policymakers can visualize different future scenarios and develop strategies to manage uncertainties.

a group of people standing in front of a sign — Manon Bernier (second from left) alongside Dato' Sri Mustapa Mohamed (Tok Pa), Tan Sri Abdul Hamid, Rushdi Abdul Rahim and Niloy Banerjee launching the Foresight Report.

UNDP Malaysia

The upcoming formulation of the 13th Malaysian Plan (2026-2030) provides an opportunity to re-evaluate economic models, adopt more robust indicators that measure well-being, and offer a more holistic and nuanced understanding of the nation's development. By using methodology and tools for scenario planning, risk assessment, and horizon scanning, Malaysia can build capabilities to create a forward-thinking and adaptive policy environment. This will support Malaysia to stay on track to achieve high income status in the next few years in the face of future uncertainties.

In Malaysia, I have learned to walk the journey with the government and national partners. After almost four years, I can still appreciate the Twin Towers, but I also see the beautiful “bukits (8)”, the cultural diversity, and so many inspiring Malaysians who are actors of change. I’m convinced that Malaysia has the knowledge, and innovative ideas necessary to drive transformative change rooted in principles of environmental stewardship, social equity, and intergenerational justice.

a person standing on top of a dirt road holding a sign — Manon Bernier with her spouse hiking Bukit Pau

Manon Bernier / UNDP Malaysia

Building on the country’s strong policy direction and exiting capacities, UNDP will continue to tap into its knowledge network to help test and adjust policy options to address gaps and bring about large-scale transformation. Thank you, Malaysia, for giving UNDP the opportunity to be your partner and supporting your journey towards sustainable development.

References

Malaysia: Overview by the World Bank, 2022: https://www.worldbank.org/en/country/malaysia/overview
Malaysia HDI: https://hdr.undp.org/data-center/specific-country-data#/countries/MYS
Asian Development Bank (2012): https://www.adb.org/sites/default/files/publication/29847/economics-wp-307.pdf
New Straits Times (2024): https://www.nst.com.my/news/nation/2024/03/1025727/sabahs-hardcore-poverty-six-times-national-rate-says-rafizi
National Energy Transition Roadmap (2023): https://ekonomi.gov.my/sites/default/files/2023-08/National%20Energy%20Transition%20Roadmap.pdf
Prime Minister’s Office (2023): https://www.pmo.gov.my/2023/09/malaysia-pledge-commitment-to-retain-50-percent-land-mass-under-forest-and-tree-cover-pm-anwar/
https://www.malaymail.com/news/malaysia/2024/05/22/nik-nazmi-state-govts-urged-to-draw-up-new-approaches-to-increase-ecological-fiscal-transfer-impact/135869
Hills, in the Malay language.