Malaysian public sector gets pay rise amid poll talk

PUTRAJAYA, Malaysia, May 21 (Reuters) Malaysia has approved pay rises ranging from 7.5 to 35 percent for federal government employees, the prime minister said today, in a move that analysts have said could precede an early general election.

Abdullah Ahmad Badawi, possibly gearing up for snap polls by early 2008, had announced the much-awaited pay revision early this month, saying the increase would apply to all of Malaysia's roughly one million public servants, including the police and armed forces.

Abdullah today said the increases would take effect from July 1, and would cost the government an additional 6.8 billion ringgit (2 billion dollars) a year.

He said armed forces and police personnel would get an extra 20 per cent on top of the new increases, effectively hiking their wages by 9 to 42 per cent.

''I am sure this pay revision will help reduce the burden faced by the public sector worker, especially those who are i*n the lower income groups,'' Abdullah told a gathering of civil servants in the administrative capital of Putrajaya.

''At the same time I wish to remind all civil servants that with this pay increase the government's and the people's expectations of the public sector will increase.'' DEMAND-PULL INFLATION Malaysia last revised the salaries of government workers in 1993. A trade union representing government workers had asked for a 10 to 40 per cent pay increase, with the lowest-paid staff getting the largest amount.

Abdullah said the current pay revision took into account several factors, including average economic growth of 5.6 percent the past five years and low rates of inflation and unemployment.

Tax revenue had also increased significantly, making the pay rise affordable, Abdullah said, adding the government would stick to the path of fiscal prudence.

Malaysia's fiscal deficit had fallen to 3.5 per cent in 2006 from 5.3 per cent in 2003, the prime minister added.

The planned pay rise would not affect inflation, which stood at a 2-1/2-year low of 1.5 per cent in April, Second Finance Minister Nor Mohamed Yakcop said last week.

Some economists expect a slight increase in price pressures, though not quite enough to trigger a change in monetary policy.

''This will definitely have an impact on demand-pull inflation. There has been talk that the private sector might follow suit with a pay increase,'' said Gundy Cahyadi, an economist with Singapore-based IDEAglobal.com.

''But it's not going to be so much of a threat because the supply side is still manageable. It will help as long as there is no increase in fuel prices. Inflation will still be within the central bank's forecast range.'' Inflation will average 2.0-2.5 per cent this year, down from 3.6 per cent in 2006, according to the central bank's estimates.

Malaysia's official interest rate has been at 3.50 per cent since April 2006.

Most political experts expect an election early next year, though one is not due until 2009.

Abdullah, who scored a thumping general election victory in 2004, and now looks set to call for snap polls by early 2008 to consolidate his position, earlier said his ruling Barisan Nasional coalition was prepared for the polls.

''We are ready for general elections but the question is only when?'' he said. Malaysia, with 26 million people, has some 10.3 million eligible voters.

REUTERS RJ HS1451