Economist: Putrajaya can tighten spending further by trimming ‘bloated’ civil service

The Malaysian government can make further spending cuts if it reduces the size of its “bloated” civil service, an economist said. File picture shows Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi meeting civil servants during a Workers’ Day gathering in Penang. May 5, 2015. — Picture by KE Ooi
The Malaysian government can make further spending cuts if it reduces the size of its “bloated” civil service, an economist said. File picture shows Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi meeting civil servants during a Workers’ Day gathering in Penang. May 5, 2015. — Picture by KE Ooi

KUALA LUMPUR, Oct 24 — The Malaysian government can make further spending cuts if it reduces the size of its “bloated” civil service, economist Diana Rose del Rosario said today.

Del Rosario highlighted that Malaysia’s 1.6 million-strong civil service would mean a ratio of 5.1 civil servants to 100 people.

“If you look at the size of the civil service here in Malaysia compared to the Asean region, you see the bloated size of the civil service here.

“If you compare that with the population, that would come to like five civil servants for every hundred people here. That’s way higher compared to the average of around two for the rest of the economies in Asean,” the economist at Deutsche Bank, Singapore said in an event here.

She pointed to data that showed Singapore as having 2.6 civil servants to 100 people, Thailand at 2.4, the Philippines at 2.1 and Indonesia at 1.7.

She also highlighted that emoluments or wages for civil servants accounted for about one-third of the Malaysian government’s allocation in the Budget 2017 for its total operating expenditure.

She noted that the government has sought to reduce spending on emolument, with its rate of growth halved to five per cent in 2016 and 2017, down from its previous annual growth of 10 per cent during the 2010-2014 period.

“So success has been there in terms of tightening in this area, but there remains great room to cut down these emoluments,” she said.

“There’s an urgent need for the government — if it continues with its fiscal consolidation commitment — to strive for a lean and efficient public service,” she added.

She also noted that the government’s allocation for retirement charges or pension for civil servants was expected to go up in the budget, but said it was not worrying now as the United Nations’ projected the annual pace of aging of Malaysia’s population to stabilise to five per cent in the next five years.

“But if you look at the pace of growth of younger population, the younger population is set to decline. The younger population is heading towards deceleration in next five years. That does not bode well for both tax collection and domestic demand,” she said.

“There’s a need to boost real wages, ideally stemming from a boost in productivity to offset this declaration in younger population to facilitate buoyant domestic demand and tax collection,” she said.

She also said the government should continue to cut its subsidies if it wanted to hit its target of achieving a balanced budget or a zero budget deficit by 2020.

Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah, who was also present at the event, was asked if the rise in retirement charges was due to the growth in retirees or contribution from the government.

He was also asked if anything will be done to handle the rising bill for retirement charges.

“Every year the number of retirees increase, so the pension amount also increases, so we need to look at the pension bill,” he said in reply.

Both of them were speakers today at the Malaysian Economic Association’s (MEA) event titled “Budgetary Priorities in a Challenging Economic Environment”.

Out of the RM214.8 billion estimated for Malaysia’s operating expenditure in 2017,  36 per cent or RM77.4 billion is for emoluments, while over RM21.7 billion or 10.1 per cent is for retirement charges.

The total expenditure in Budget 2017 is RM260.8 billion, with a targeted deficit of 3.0 per cent to the GDP.

The allocation for emoluments in past government budgets are RM61 billion (2013), RM66.9 billion (2014), RM70.1 billion (2015) and an estimated sum of over RM73.8 billion in 2016.

Retirement charges accounted for RM14.8 billion in 2013, RM18.2 billion in 2014, RM18.87 billion in 2015 and an estimated sum of over RM18.99 billion in 2016.

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