Phase 2 SSPA Salary Adjustment To Boost Retail Economy -- Economist
By K. Naveen Prabu
KUALA LUMPUR, Jan 6 (Bernama) -- The second phase of the Public Service Remuneration System (SSPA) salary adjustment for civil servants is expected to have a strong positive impact on the retail economy, according to an economist.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the adjustment is expected to lift household consumption by increasing real disposable income rather than creating a broad-based demand shock.
“It improves real disposable income, which is the portion of wages left after taxes, debt servicing and basic necessities. That is the key variable that drives actual spending,” he told Bernama.
Mohd Sedek explained that the salary increase is the independent variable, while interest rates, inflation and job security act as control variables, with household consumption being the dependent variable.
He said the wage hike raises household cash flow while the strong ringgit keeps import prices suppressed, and global inflation pressures muted, lifting real purchasing power.
“This is exactly what Malaysia needs in 2026: a demand uplift that is real, not debt-driven and not price-driven,” he said.
Highlighting the strong ringgit in 2025 as a key stabilising factor, Mohd Sedek said it has reduced the landed cost of imported food, electronics, pharmaceuticals and household goods.
“Retailers are, therefore, able to hold prices stable while selling more units; that combination lifts revenue without eroding purchasing power, which is why the wage increase is not inflationary in practice,” he said.
From a macroeconomic perspective, Mohd Sedek said the wage adjustment is meaningful due to where it is injected in the economy, as civil servants form a large, geographically dispersed and financially stable consumer base.
“Income increases here have a high transmission efficiency into the real economy. Civil servants have a high propensity to consume, meaning each ringgit of income generates a relatively large amount of retail, service and business activity,” he said.
He said the wage adjustment represents a high-quality, high-multiplier tailwind rather than a short-lived boost.
“When civil servants receive higher wages, spending flows first into supermarkets, restaurants, pharmacies, transport, childcare, domestic travel and online retail.
“That spending then circulates among suppliers, logistics firms, landlords and staff, creating a multiplier effect in which one ringgit of income generates more than one ringgit of economic activity,” he said.
Mohd Sedek added that for the government, the same multiplier works in reverse as a fiscal stabiliser because higher spending raises indirect taxes, corporate profits and income tax receipts across the value chain.
“At the same time, a stronger ringgit reduces subsidy and import-related fiscal leakages, allowing the wage hike to reinforce growth without meaningfully worsening the budget balance,” he said.
Civil servants under the SSPA will receive a Phase 2 salary adjustment in the January payroll, calculated based on their final salary as at Dec 31.
The adjustment continues the SSPA salary increase announced in 2024, which involves a 15 per cent rise for the Implementation Group and Management and Professional Group, and seven per cent for the Top Management Group.
-- BERNAMA