Malaysia is stuck in the middle income trap. And one of the problems keeping it there is the massive size of its civil service – estimated at 1.6 million by Mohammad Sherif Kassim, the former secretary general of the Ministry of Finance.
While such a large service has the effect of buttressing the government, making Malaysia more stable, it also hampers efforts to transform the government, making Malaysia more stagnant too.
So while Mohammad’s desire to reduce the size of the civil service is quite understandable – indeed, it may even be necessary to prevent a government financial meltdown – Prime Minister Najib Razak knows that doing so would be the kiss of death politically, given the impending general election.
Thus Najib has taken to reassuring the civil service, which is predominantly formed of Malays, not to worry about any reduction in headcount. The can has been kicked down the road.
It should be noted that Mohammad’s figure of 1.6 million includes armed forces, police, education and hospital personnel. The Congress of Unions of Employees in the Public and Civil Services (Cuepacs) claims that these should not be included in the headcount, as is the case in some other countries, and consequently claims the civil service numbers 500,000. Even so, there is a self-serving logic to Cuepacs’ suggestion – they don’t want their heads to roll.
However the headcount is made, the fact is the Malaysian civil service is a behemoth, one of the largest in the world.
In February 2017, the deputy finance minister, Abang Johari, warned the annual payroll was already at US$19 billion while pension payments were US$4.5 billion a year.
There is one civil servant for every 19.37 people in Malaysia, according to Johari, as opposed to 1 to 71.4 in Singapore; 1 to 110 in Indonesia; 1 to 50 in South Korea; 1 to 108 in China; 1 to 28 in Japan; 1 to 84 in Russia; and 1 to 118 in Britain.
The bloated size of Malaysia’s service causes government expenditure to rise yearly and create a government that is unwieldy and bulky.
While opposition parties like the Democratic Action Party (DAP) have voiced concern over the size of the civil service before, not even they are prepared to address the issue head on as they too are scared to lose votes. Ninety per cent of Malaysia’s civil servants are ethnic Malays.
This is the demographic that the DAP and the opposition coalition have been targeting in their bid to beat Najib in the upcoming general election.
Liew Ching Tong, one of the top strategists in the DAP, believes that if the Malay votes were to dip by 15 per cent – a distinct possibility – the opposition would gain another 34 seats in parliament. This would immediately deny Najib a simple majority of 112 seats.
Given the General Election is looming – it must be called by the middle of next year – the bloated nature of the civil service has been left largely uncommented upon.
Yet, in spite of the pliant nature of the Malaysian government under Najib, there are tell tale signs that the civil service may throw their lot to the opposition anyway. These votes may well come from the armed forces and police, whose welfare and salaries remain stagnant.
Leaks against the Najib government have turned from a trickle to a torrent over the last five years.
And the Malaysian police, which has in the past appeared happy to crack down on the opposition, has begun to turn a blind eye.
Rais Hussin, the top strategist of Bersatu, which is the party of former premier Dr Mahathir Mohamad, told The Malaysian Insight that “silent support of the opposition is gaining”.
He said Malaysian civil servants were pro-Bersatu but would not declare their support openly. However, they would vote out Najib’s Umno (United Malays National Organisation) party on a secret ballot.
Rais may well have a point, as the government servants fear being dismissed from their jobs.
The key question facing Najib now is fiscal management. How does he continue to pay the government employees and their pensions?
Government coffers are fast diminishing – on July 31, state investment fund 1MDB failed to make a reimbursement of US$650 million to Ipic, a sovereign wealth fund in Dubai that has lent 1MDB nearly US$6.4 billion in two loans it now wants serviced.
Najib can borrow from local banks to tide him over, but if he does this it will have the effect of “crowding out” other genuine borrowers, and the interest rate would spike.
This would lead to a vicious cycle in the economy and prompt living costs to rise.
Thus Najib is trapped. His only political lifeline is the Malaysian civil service.
If he can retain their support, and continue to attract large amounts of foreign direct investment from China, he can cling to power.
But first Malaysia must find a way around Beijing’s restrictions on how the money is spent – otherwise investments from China will cater only to Belt and Road Initiative projects.
Such a play would not be without risk, as the opposition has pointed out. If Malaysia keeps taking money from China without looking at the merits of the projects the cash is spent on, Malaysia risks becoming another Sri Lanka – which has a port managed and controlled wholly by the Chinese due to the island’s inability to repay its debt.
The opposition has argued, not without merit, that Malaysia under Najib stands at the precipice of just such a state of affairs if it takes a pro-China approach to the exclusion of all other investment and fiscal options provided by the international markets.
But with the albatross of 1MDB hanging on Najib’s neck – he denies being linked to a scandal at the fund in which investigators traced US$700 million into a private bank account – even the option of going global has become problematic.
Pay outs and bonuses for the Malay civil service could yet turn the situation around, but doing so would incur even greater domestic and foreign debt.