GRADUAL SALARY ADJUSTMENT COULD STRENGTHEN MALAYSIA'S CREDIT PROFILE - ANALYST

By Karina Imran

KUALA LUMPUR, Jan 16 (Bernama) -- A gradual salary increase will not lead to excessive inflationary pressures, UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan said. 

He told Bernama that by spreading the increase over two years, the government could avoid sudden shocks to the budget, while supporting fiscal discipline and maintaining the balance between improving public sector wages and controlling inflation. 

"An often-overlooked consequence of raising civil servant salaries is its potential to positively impact the country’s credit rating — provided the increase is managed sustainably and within the broader context of sound fiscal policy," he said. 

Mohd Sedek explained that effective fiscal management, such as carefully planned and controlled salary increases that do not lead to excessive budget deficits or inflationary pressures, sends a positive signal to rating agencies that the country is a reliable borrower. 

"A higher credit rating generally attracts more foreign investment, as investors are more likely to invest in countries with higher credit ratings, perceiving them as lower-risk with greater potential for stable returns," he said. 

He also highlighted that increased foreign investment boosts local currency demand, contributing to exchange rate stability.

"A stable currency reduces exchange rate volatility, making the country even more attractive for domestic and international investors," he said.

Under the Public Service Remuneration System (SSPA), officers in the Implementing, Management and Professional groups received a phased salary adjustment of 15 per cent - eight per cent in Phase One starting December last year, and seven per cent in Phase Two, starting January 2026.

However, the top management group received a salary adjustment of four per cent in Phase One and three per cent in Phase Two.

Mohd Sedek said the gradual approach to salary increases helps the government manage budget pressures and prevent abrupt price surges.

"Moreover, higher incomes for civil servants lead to increased disposable income, which boosts consumer spending and fuels economic growth," he said. 

He emphasised the government’s responsibility to align public sector wages with the rising cost of living, particularly in urban areas like Kuala Lumpur, while acknowledging that bridging the wage gap is a gradual process.

"The process of raising wages to match inflation and living costs requires careful and sustained planning. That said, the government can play a crucial role in controlling key variables that impact the cost of living, such as housing, transportation, and essential goods, through targeted policies.

"By addressing these factors, the government can help reduce the pressure on the rakyat and ease the financial burden they face, even if wage increases alone are insufficient," he said.

While Malaysia's food inflation is higher compared to ASEAN neighbours, the country has an advantage in maintaining more stable transport and housing costs, thanks to its subsidy framework and controlled utility pricing.

Mohd Sedek also noted that fluctuations in RON95 and diesel prices have a relatively subdued direct impact on Malaysian households, primarily due to the government's ongoing fuel subsidy system.  

"These subsidies act as a stabilising mechanism, absorbing the cost variations resulting from global oil price movements, thereby preventing significant shifts in the cost of living. 

"For low- and middle-income groups, who are more vulnerable to price changes, this stabilisation plays a crucial role in shielding them from immediate financial pressure," he said. 

A well-targeted subsidy system, if implemented effectively, could ultimately alleviate the financial burden on low- and middle-income groups, promoting a more equitable distribution of subsidies, he said.

Mohd Sedek urged policymakers to focus on controlling the costs of essential goods and services, such as food, energy, and housing, by addressing supply-side bottlenecks. 

"For instance, policies that foster increased competition in sectors like agriculture or energy could help reduce prices, benefiting consumers and maintaining their purchasing power," he said. 

He further emphasised that public policies should incentivise industries focused on improving productivity, as wage growth must align with productivity increases to be sustainable over the long term.

-- BERNAMA