Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on March 14 - 18, 2016.

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The government is facing a tough task of cutting its budget for the civil service, which has long been said to be oversized at 1.61 million currently — an increase of 360,000 in the last five years — amid challenging economic conditions.

Recall that last April, the freeze on new job positions was part of measures to control the size of the civil service. This was followed by cost-saving measures implemented this month. The rationalisation of the civil service was carried out in 2008, 2010 and 2011.

“We were informed at the beginning of this month about ways to optimise government spending. Now, when three to four civil servants leave, the government will only replace one ... we cannot claim overtime,” Cuepacs chairman for Kuala Lumpur Ja’apar Mansor tells The Edge.

However, a spokesperson for the Public Service Department (PSD) says this is not true as the government will continue to have 1.61 million public servants.

“The government can fill vacant positions, but [the departments] can’t ask for more,” he says, adding that between 21,000 and 23,000 employees retire annually.

Last week, Chief Secretary to the Government Tan Sri Dr Ali Hamsa was reported as saying that the government will retain the 1.61 million public servants and continue to recruit new staff to fill vacancies. If there was a need for new positions, staff would be redeployed from other departments, he said.

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He was commenting on a Treasury Department circular on measures to optimise government expenditure, which lists 14 guidelines, including a freeze on new job positions.

RHB Research chief Asean economist Peck Boon Soon opines that if PSD maintains its workforce at 1.61 million, the freeze on new positions will not have a significant impact on the government’s effort to curb its budget deficit. The government aims to cut the country’s budget deficit to gross domestic product to 3.1% in 2016 from 3.2% in 2015.

Although the government has initiated some cost-saving measures, Peck believes the impact will be minimal as the number of civil servants is still high.

Concurring with Peck, independent economist Lee Heng Guie highlights that the root cause of the budget deficit is the high public sector operating expenditure, which is higher than the development expenditure. He says while the government has recognised the need to streamline the civil service since 2010 when launching the New Economic Model, the number of civil servants continues to rise, with 400,000 additions between 2010 and now.

According to the latest Economic Report by the Ministry of Finance, total emoluments and retirement charges for civil servants amounted to RM87.3 billion or more than 40% of the government’s total operating expenses in 2015. The amount is expected to reach close to RM90 billion this year.

It is worth noting that the number of government employees (including those in public administration, health education and defence) stood at 1.25 million in 2010, up 100,000 or 8.7% from 2006. The figure jumped to 1.61 million within a short period of five years.

“Despite the government recognising that we have a bloated public service, there was a big jump in the number of civil servants,” Lee tells The Edge.

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Most economists say the freeze on recruitment should have been done earlier to have a meaningful economic impact. Given the uncertain economic outlook, this may not be a good time to carry out the measure.

“The government said in 2010 that there was a need to downsize, but now in 2016, it is only freezing new hires. It shows that it has lost the compass it set in 2010,” Institute for Democracy and Economic Affairs chief executive Wan Saiful Wan Jan says in an email reply.

“The freeze is carried out because it seems to have run out of money, not because it is implementing a strategic reform. When something is done because there is no other option, instead of a planned gradual strategic reform, we should expect some turbulence and resistance.”

While recognising that Malaysia has one of the biggest civil services in the world relative to its population with much of the country’s tax revenue channelled to footing the ballooning operating expenditure, Professor Emeritus Datuk Dr Mohamed Ariff Abdul Kareem says such drastic cutbacks can be carried out safely only when the economy is booming.

“Some countries like Cuba have done it with a lot of pain. The political cost will be too huge for Malaysia to do it [now],” says Ariff, who is with the International Centre for Education in Islamic Finance, in an email reply.

Therefore, he is of the view that it is most unfortunate that the freeze is taking place for the wrong reasons, namely the sharp drop in the prices of oil and gas leading to falling government revenue and budget constraints, among others. It would add to unemployment woes among the youth and contribute to an economic slowdown with negative impact on income disparity and economic welfare.

“The freeze is extremely overdue as the civil service has long been oversized, but it is a pity it is taking place at the wrong time, when the economy is showing signs of strains of sorts. The freeze is good news for the long term but bad news for the short term as it will exacerbate the impending economic slowdown,” says Ariff.

Both Ariff and Wan Saiful agree that the Malaysian civil service needs not just a freeze in recruitment but a sizeable downsizing, which will make it more efficient and cost-effective. At the same time, the government should create an enabling environment that will generate more jobs in the private sector instead of overloading the public sector in order to have a significant economic impact.

Most economists, however, recognise that it is difficult to come up with an optimum number of public servants for a country, given the different definitions of “civil service”. They believe that it would be good to learn from other countries that have a small public service relative to their population and total workforce.

According to the Department of Statistics, based on Malaysia’s population of 31.27 million and total workforce of 14.37 million, civil servants account for 5.1% of the population and 11% of the total workforce.

Some economists opine that Taiwan, which has a similar economic model, is a comparable benchmark. Based on Taiwan’s population of 23.48 million, civil servants accounted for 7.82% of the population and 8.13% of the total workforce in 2014.

In a nutshell, despite the realisation of the need to streamline the civil service since 2010, the rationalisation process is likely to face more hurdles in its implementation, especially during an economic downturn.

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