Malaysia faces wage increase pressure amid tight budget

The Malaysian government is grappling with challenges in implementing a wage increase plan for 1.6 million public servants.

According to Dr. Goh Lim Thye from the University of Malaya, raising wages is necessary to address the pay disparity between the public and private sectors. It will place additional strain on the national budget and the government's deficit reduction goals.

Dr. Goh noted that not the all public servants will benefit equally. Funds will be allocated selectively, rewarding only high performers. The government is also expanding the tax base, reducing subsidies, and cutting non-essential expenditures to manage finances and aim for a budget deficit of 4.3% in 2024 and 3% in 2025.

By linking wage increases to performance and pursuing financial reforms, the Malaysian government seeks to reduce the fiscal deficit while boosting public sector budgets. This approach aims to manage finances effectively and support sustainable economic growth.

Higher wages will also increase purchasing power, stimulating economic activity, particularly in retail.

Dr. Goh emphasised the strong relationship between income and consumption in Malaysia, suggesting that higher incomes lead to increased consumer spending, benefiting the retail sector.

From 2019-2022, Malaysian household income grew by 2.4% annually, while household consumption rose by 3.7% annually. However, much of the income increase is spent, prompting the government to encourage saving.