PETALING JAYA: As Malaysia continues to celebrate the appreciation of the ringgit, especially since the local note has whizzed below the psychological RM4.00 to US$1 barrier earlier this week, it is perhaps sobering to consider what this means on a more practical level.
At last look, the ringgit was trading at RM3.92 to the greenback.
Questions have been raised on whether Malaysia would be able to attain “high income nation” status should the local note continue strengthening from the country’s current “upper middle income” bracket, according to the World Bank’s Atlas Method.
Briefly, the Atlas Method is the World Bank’s standard approach for converting a country’s gross national income (GNI) per capita – or national average income per person – from a local currency into US dollars for the purpose of income classification.
While the ringgit’s rise has been admirable, for various factors, economists believe that the country’s productivity has to be sustained for the numbers on paper to translate into a meaningful, palpable change for the public.
Senior economist and executive director at UOB Malaysia Julia Goh pointedly said: “A stronger ringgit helps, but it is not a silver bullet.”
She explained that the Atlas Method averages exchange rates over three years and adjusts for inflation to dampen short‑term currency swings, and therefore currency levels matter, but sustained foreign exchange (forex) strength and real income gains matter more.
“The current high‑income threshold (2025 classification based on 2023 data) is US$14,005 Atlas GNI per capita. Malaysia’s latest (2024) Atlas GNI per capita is about US$11,670 – roughly US$2,300 to US$2,400 below that bar.
“Ringgit appreciation can narrow the gap, but we would need a few years of stronger currency, higher real wages and productivity to lock in graduation under the Atlas smoothing,” Goh told StarBiz.
In short, she said a strong currency would help Malaysia cross the “high-income” line but productivity would keep it there.
She elaborated that while a forex‑led jump can push up Atlas GNI per capita, without productivity and wage depth, the upgrade is fragile and can reverse if the currency normalises.
“Hence domestic value‑added growth, productivity, and broad‑based wage gains are the durable route,” she added.
“Hence, policymakers should emphasise quality of income, including median household income, labour productivity, and high‑value job creation.”
Concurring with Goh while adding a statistical perspective, investment strategist and economist at IPP Global Wealth Mohd Sedek Jantan estimated that a 10% to 15% appreciation in the ringgit could generate a material statistical uplift in dollar‑denominated GNI per capita.
He said this could help Malaysia move closer to the high‑income threshold, all else being equal.
However, he noted it is important to recognise that this threshold is a moving target, adjusted annually by the World Bank based on international inflation.
By 2026, the high‑income threshold could plausibly rise towards US$14,500 to US$14,800, meaning Malaysia is effectively racing against a shifting goalpost, according to the economist.
“Closing the current gap within one to two years is aggressive but plausible, provided the ringgit remains firm, real gross domestic product growth stays above potential, and productivity momentum is sustained,” Mohd Sedek told StarBiz.
More importantly, he said the distinction between economic progress and statistical classification is critical.
This is given that in the short term, the high-income classification is far more sensitive to exchange rate movements than to improvements in productivity or real wage growth, which accumulate gradually.
As a result, he said reclassification can occur even if labour productivity remains flat, wage growth is uneven, or value added per worker does not improve meaningfully.
“That is why relying on the exchange rate alone risks turning high-income status into a numbers game on paper, rather than a change people feel.
“Currency strength can lift reported income levels in the near term, but on its own it does not strengthen the economy’s capacity to generate higher real incomes or long-term resilience,” he emphasised.
Mohd Sedek added that the quality of the income status transition matters more than the timing.
To ensure the upgrade is robust rather than cosmetic, progress must be accompanied by sustained improvements in reducing vertical mismatch within the labour market, and continued growth in GNI per capita driven by genuine value creation.
Without continuous gains in productivity, economic complexity and job quality, he believes Malaysia still risks a paper high-income outcome, where statistical gains run ahead of structural capacity.
This is why current currency strength must be treated as a window of opportunity to lock in reforms and deepen value creation, rather than relied upon as an end in itself, said the economist.
Meanwhile, addressing policymakers, Mohd Sedek noted that headline reclassification should not dilute reform momentum, particularly in areas affecting productivity, skills matching and value-added intensity.
Concurrently, economist and associate professor at Universiti Kuala Lumpur Business School Dr Mohd Harridon Mohamed Suffian said how the strengthening trajectory of the ringgit can influence income levels has to be perceived from several angles.
He said looking only upon the fluctuation of the local note is not wise in a sense, as the US dollar has also shown substantial depreciation against other major currencies, which has subsequently contributed to the comparative elevation of the ringgit.
Furthermore, Mohd Harridon said the ringgit’s movement still faces external and internal influences, the former most clearly in the ever-present speculative activities of currency traders, which may one day turn against the ringgit.
“As such, the value of the labour productivity should also be considered in order to gauge whether the value of GNI per capita is the best representation of the income status of Malaysia,” he told StarBiz.
Acknowledging that a stronger currency would indeed propel Malaysia into the “high-income bracket”, Mohd Harridon nonetheless commented that the “promotion” would be artificial if several economic indicators such as productivity, incomes, employment, and lifestyle are not optimised.
