Govt's proposal to raise civil servants' salaries by over 13 per cent raises questions about fiscal prudence - Economists

Prime Minister Datuk Seri Anwar Ibrahim delivering his speech at the 2024 Labour’s Day celebration at the Putrajaya International Convention Centre (PICC) on Wednesday. – Photo by ROSLI TALIB

SHAH ALAM – Economists have noted that the government’s plan to increase civil servants’ salaries by more than 13 per cent raises concerns about fiscal prudence, highlighting that this move will lead to higher operating expenditure.

The announcement made by Prime Minister Datuk Seri Anwar Ibrahim on May 1 about the wage hike for civil servants starting December, this year had sparked mixed reactions from the public and raised questions among economists.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the salary increment should serve as a morale booster, easing the financial burden for civil servants and potentially enhancing their productivity through improved financial well-being.

However, he said the adjustment entailed a higher additional allocation totaling RM10 billion, necessitating the government’s continued commitment to fiscal consolidation.

“In my view, salary adjustments should occur at acceptable intervals to maintain civil servants’ purchasing power.

“Moreover, the rewards system should foster a high-performance culture that recognises and rewards individuals who work hard and contribute significant value to the organisation, ultimately attracting and retaining top talent to enhance the country’s productivity,” he said.

On the impact of increases in civil servants’ salaries on the overall cost of living in Malaysia, Afzanizam said it was important to enforce existing rules and regulations to prevent profiteering, price manipulation, hoarding and other forms of malpractice by businesses.

He also highlighted that if the private sector followed suit, it could stimulate consumer demand, potentially leading to some degree of inflation.

Concurring with Afzanizam’s views, Malaysian Institute of Economic Research (MIER) senior research fellow Dr Shankaran Nambiar said the purpose of this initiative was unclear, but the increase in pay will certainly provide relief to civil servants amid the increasing cost of living.

“Nevertheless, implementing this policy will impose an additional burden on the government, as it will contribute to an increase in operating expenditure.

“The timing of this pay hike is also difficult to justify. Introducing a 13 per cent increase in salaries while the government is striving to raise tax revenue raises questions about fiscal prudence,” he said.

However, Shankaran also noted that the Prime Minister must have valid reasons for wanting to incentivise civil servants.

“It may be perceived that reallocating funds from subsidy rationalisation could contribute to maintaining the living standards of civil servants,” he said.

At the Labour Day 2024 national level celebration in Putrajaya on Wednesday, Anwar announced the increase which was among the highest and best in the country’s history involving an allocation of over RM10 million.

Anwar said that under the Public Service Renumeration System (SSPA) which was being detailed, the government will also increase the salary to ensure that the minimum income of civil servants exceeded RM2,000 per month compared to the current minimum income, covering salaries and fixed allowances of civil servants which is RM1,795 per month.