Kuala lumpur: 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.
According to BERNAMA News Agency, 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.
Mohd Sedek emphasized that the current economic conditions in Malaysia are conducive for this kind of salary adjustment. '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 stabilizing factor, he noted that 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 stated that 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.
He further explained, '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 the wage adjustment represents a high-quality, high-multiplier tailwind rather than a short-lived boost.
The economist detailed how the increased wages for civil servants result in spending flows into various sectors such as 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 stabilizer 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 of Dec 31. The adjustment continues the SSPA salary increase announced in 2024, which involves a 15 percent rise for the Implementation Group and Management and Professional Group, and seven percent for the Top Management Group.