Malaysia is increasing the salaries of its civil servants by more than 13% despite the country still reeling from a weakening ringgit and rising prices.

Prime Minister Anwar Ibrahim announced that the government is allocating 10 billion Malaysian ringgit (US$2.11 billion) to bump up the salaries of civil servants. The record pay hike would allow government workers to take home a minimum monthly income of MYR2,000 (about US$420).

"Currently, the minimum overall income of civil servants is RM1,765. A new criteria and measurement will be introduced; the minimum overall income including allowances will be RM2,000," the Prime Minister said, adding that civil servants can expect the new salary scheme to take effect in December.

As for the private sector, the Prime Minister urged companies that are making “huge profits” to increase the pay of their workers as a way to share their gains.

Malaysia currently employs some 1.2 million civil servants, about 90% of whom are considered Bumiputeras, or native Malays, according to Free Malaysia Today.

Malaysia’s economic struggles

Ibrahim’s pay hike announcement was met with cheers by civil servants present during the Labour Day celebration. However, the news still came as a surprise to some observers given that Malaysia is still going through economic struggles.

The Southeast Asian country saw its national currency, the ringgit, weakened by 3.9% against the US dollar this year. It had fallen to a 26-year-old low just in February.

Both the Malaysian government and the Bank Negara Malaysia pinned much of the blame for the ringgit’s lacklustre performance on external factors. One of the most glaring reasons is the country’s struggling export sector.

The slide of the ringgit is causing the prices of some basic goods to increase as well, particularly food. If the ringgit’s value continues to drop, experts warn that it could end up fuelling inflation in Malaysia even further.

Despite this, the government remains confident that it can turn the country’s fortunes around. While Ibrahim admitted that the ringgit’s weakening was “concerning” for them, he believed that the situation was “under control”.

Government officials and the central bank said they expect Malaysia’s full-year economic growth to reach 4% to 5% this year. The figure is slightly better compared to the country’s 2023 growth of about 3.7%.

However, it is still much lower compared to the 8.7% growth it had reached in 2022, which was viewed as a 22-year high for Malaysia.

In October 2023, the Ibrahim government introduced a capital gains tax and a tax on high-value goods while also cutting subsidies in the hopes of improving the country’s fiscal position as it faced an economic slowdown.