Bloated Malaysia civil service presents headache for Najib

[KUALA LUMPUR] Malaysian Nor Mohamad loved her job with a major Western tech company. But she gave it up after two years, tired of bickering with her parents who felt she'd be better off in the public service.

"It's boring but stable," said the master's degree holder, who is in her thirties and asked not to be fully identified, citing government policy.

"Even though I'm not so in love with the job, I'm thankful that in this economic situation there's no bad impact to my career."

Malaysia's civil service employs 1.6 million people, or about 11 per cent of the labour force. The jobs provide stability and security, including for ethnic Malays who are the majority of the population. Now the bloated bureaucracy presents a challenge to Prime Minister Najib Razak.

Mr Najib, whose ruling coalition Barisan Nasional has been in power for nearly 60 years with the help of the Malay vote, has pledged to gradually narrow a budget deficit the country has been running since the Asian financial crisis.

The commodity-driven US$296-billion economy is expected to grow at the slowest pace in seven years in 2016, with lower oil prices eating into revenue.

But trimming the public workforce to improve the government's coffers is difficult. While Mr Najib has survived a year of political turmoil over funding scandals, he needs the support of Malays to win the next election due by 2018.

His party, the United Malays National Organisation, has for decades propagated policies that provide favourable access to education, jobs and housing for Malays and indigenous people, known collectively as Bumiputeras.

"The civil service in Malaysia is intricately jived in with the ethnic policies" of the government, said Jayant Menon, an economist at the Asian Development Bank.

"This is a form of ensuring not just employment, but relatively attractive employment."

Malaysia's civil service relative to population is large, at more than double the average in the Asia-Pacific region by some measures, according to Mr Menon. The cost of maintaining it is draining resources at a time government revenues are falling.

Salaries, pensions and gratuities account for about a third of the budget every year, the biggest expenditure item. The government doesn't regularly publish data on the size of the public service.

Mr Najib has weathered a year of graft allegations over hundreds of millions of dollars that appeared in his personal bank accounts before the last election in 2013, with the claims putting some pressure on his leadership. He denies wrongdoing and was cleared by the country's attorney-general earlier this year.

Mr Najib's office didn't respond to an e-mail seeking comment on the civil service. The office of the chief secretary to the government also did not reply to an e-mailed request for comment.

Malaysian officials have previously defended the size of the civil service, which includes teachers, doctors, soldiers and police. Idris Jala, then-minister in the Prime Minister's office, said in 2014 that it wasn't bloated even though it could be made more efficient to save the government money.

Mr Najib's government spent 1.1 billion ringgit (S$368.7 million) to raise salaries for civil servants last month - the biggest rise since 2013 - and increased their minimum starting pay to 1,200 ringgit a month.

Like in previous years, public employees received a 500 ringgit special allowance just before the Eid al-Fitr holidays in July, a celebration marking the end of the Muslim fasting month.

"The civil service forms an important support base for the government and can usually be counted upon to show up and vote for the ruling party during elections," said Chia Shuhui, an Asia analyst at BMI Research in Singapore.

"The government is not going to cut benefits to their support base, and therefore it is unlikely to make significant changes in terms of its expenditure on the civil service."

The government has been taking steps to streamline the civil service and improve the efficiency of the public sector as part of its long-term efforts, Ms Chia said.

Given that nothing much could be done to the civil service because of political and ethnic sensitivities, the government should focus on cutting its business exposure through the government-linked corporation divestment program to increase revenue, the ADB's Mr Menon said.

While UMNO has worked to retain Malay voters, the opposition has also sought to support the bureaucracy. The opposition-controlled Selangor state government pledged a 1.5 month bonus to its civil servants to mark Eid.

In neighbouring Thailand, the ruling junta gave the nation's two million civil servants and soldiers a four per cent salary increase in December 2014 at an expected cost of 22.9 billion baht (S$881.3 million).

Many civil servants took part in anti-government protests that led to the May 2014 military coup and the junta has since emphasised the need to give bureaucrats greater power over elected officials.

"Civil servants are indeed an indispensable support base for Barisan Nasional in general and UMNO specifically," said Oh Ei Sun, a senior fellow at the S Rajaratnam School of International Studies in Singapore.

"Hence the need to constantly improve their welfare."

BLOOMBERG