Gap between rich and poor states widening, says World Bank economist

GEORGE TOWN: The gap between rich and poor states is widening over time, with political and social implications for the country, says a World Bank economist.

Deisigan Shammugam said the income of households and businesses in Kuala Lumpur is about eight times that of Kelantan, adding that this gap was “big”.

He added that the income of households and businesses in Kuala Lumpur could be compared to Portugal’s, while Kelantan’s could be compared to that of Sri Lanka’s.

The gap between rich and poor states in Malaysia was also bigger compared to other countries around the world, he said.

“This (gap) has spillover effects on politics and social issues. It won’t be unusual for (these poor) states to ask for more autonomy, for more revenue and for more roads,” Deisigan said at a forum on federal and state relations here.

He was commenting on Malaysia’s goal to become a high-income nation by 2030.

Deisigan went on to say that theoretically, a state that is lagging behind should be able to “grow faster and catch up with the richer states”, citing his observations in Brazil, China and the European Union.

“But this is not happening in Malaysia. If this is a 100-metre race, the people who are in front are running faster than the people who are at the back.”

Deisigan however said that these poorer states had real potential for economic growth.

He said if one were to look at the level of capital and labour in each state, the poorer states actually had higher potential growth than the richer states.

“What that means is if all states were to grow at their full potential, the gap between the richer states and the poorer states can be narrowed.”

Deisigan said the gap could be narrowed if states focused on places with strong growth potential, such as certain cities and districts, instead of using the same approach everywhere.

He said each place had different problems. Some needed better roads and infrastructure, while others needed help dealing with climate risks. He said federal funding for states should also be clearer and based on proper rules.

Deisigan said the World Bank believed that the next growth potential in Malaysia lies at the state level, but federal funding must be more transparent and rules-based.

He then wondered if Malaysia risked becoming a high-income nation only on paper, with the poorer states and communities left behind

“Will all Malaysians reap the benefit of this high-income status or only a few?”