Salary hike for Malaysian civil servants

Malaysia's move to give civil servants a hefty pay rise from July 1 will boost economic growth but could cause the budget deficit to rise for the first time since 1999, economists said. Prime Minister Abdullah Ahmad Badawi announced the 8 billion ringgit (US$2.4 billion) additional annual spending, saying the country's 1 million civil service employees deserve the raise, their first in 15 years. Depending on their rank, wages of civil servants will rise by 7.5 to 35 percent, while the police and military will get an increase of as much as 42%.

"While the civil servants are celebrating the confirmation of the long-awaited salary adjustment, we believe the government could be having some headache now on its financial position," said OSK Research economist Sia Kit Ee. CIMB Investment Research said the government will have to do "some rebalancing" of spending in 2008. While the deficit is expected to rise, it said the additional spending could be offset by higher-than-projected government revenue collection. Sia said the government can ask state-owned Petronas to raise its dividend payments - already the second-biggest source of federal revenue after corporate and personal income taxes - or tap the capital market.

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