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Critical allowance annulment

When I first started in healthcare administration five years ago, there was a great emphasis on doing more with less from the ministry. At that time, anyone who mentions it in their speech never fails to get a round of applause from the audience. The pursuit of operational efficiency sounded almost noble. Years down that path, the ministry finally realised that we cannot continue to do more with less without compromising on the quality of services that we provide, and changed the narrative completely. Healthcare workers began to feel hopeful that they wouldn’t be pushed to the limit of their abilities with decreasing resources to do so anymore. Well, until the situation took a turn for the worse several days ago.

On the 20th of December 2019, the Public Service Department (PSD) released a service circular (Pekeliling Perkhidmatan Bil 10 2019) which stated that the Critical Allowance, among others, is going to be revoked for new hires across 33 public service schemes, including those in healthcare service, starting 1st January 2020. Within several days, it generated an unprecedented professional outcry from healthcare workers all over the country. Many doctors are concern about the welfare of junior doctors, petitioning and voicing their heartfelt grievances on social media platforms with #justiceforJuniorDoctors. Associations for healthcare workers affected by the announcement swiftly released press statements asking for the allowance to be reinstated. In response to the criticisms, PSD released another statement on the matter, followed by an announcement by the Prime Minister to postpone the move some days later.

What is Critical Allowance?

Critical Allowance is an allowance that was put in place by the government as part of the Government Remuneration System since 1992. Its purpose was to act as an incentive to attract employees to work in certain public service schemes that were previously in critical need of workers. Roughly three decades ago, healthcare service is one of the public service schemes that was having high demand but low supply of workers. The incentive which provided an extra monthly allowance of RM750 has managed to attract healthcare professionals such as doctors, nurses, dentists and pharmacists to work in the government sector. The doctor to patient ratio (doctor: patient) has improved from 1: 1,519 in 1998, to 1: 625 just last year, perhaps partly due to the provision of the allowance.

Why didn’t PSD increase healthcare workers pay scale to reflect the high demand and low supply at the time? Why introduce Critical Allowance?

It was because increasing the pay scale is a long-term and more permanent solution that is harder to retract, which wouldn’t allow the government to respond quickly to changing trends in the employment market. Reducing the pay scale of government employees amidst changing employment market situation is nearly impossible and would definitely generate even more negative responses. Although increasing the pay scale and introducing Critical Allowance serve the same purpose (i.e to attract employees to fill the high demand for workers in certain public service schemes), reliance on the latter helped the government to be more agile due to its non-permanent nature. Clearly, going down the path of Critical Allowance was the preferred approach.

So, why retract the Critical Allowance now?

You probably know the answer already. The supply of healthcare workers, particularly doctors, has apparently exceeded the demand (available posts). According to the Deputy Director-General of Civil Service (Development), Datuk Suhaime Mahbar, currently, there are 24,756 applications to become medical officers (Pegawai Perubatan) while there are only 15,268 posts available. On that basis alone, those who are going to enter the healthcare service next year are deemed ineligible for the incentive as the government sector now appears to be in no critical need of doctors anymore. In fact, by retracting the allowance PSD is looking at reversing the ‘oversupply’ of doctors. But, only time will tell if that would actually improve the employment terms of junior doctors in this country.

Is that all there is to it?

No, of course not. We have to incorporate macroeconomics perspectives in order to have a more well-rounded view of the situation. According to Bank Negara Malaysia Outlook and Policy in 2019, the government is going to continue its commitment to reduce non-critical spending, increase efficiency through cost-reduction and channelling capital towards upgrading and improving public infrastructure and amenities. It appears that annulment of the Critical Allowance is in accordance with the current economic policy of the government. But, is that a good enough reason to abolish it? Are we going to see some of the cost savings generated from the abolishment being channelled towards better healthcare infrastructure in the near future?

The healthcare workers’ argument

The doctors argue that the need for junior doctors is still high. This is based on the Auditor-General 2018 Report Series 1 which concluded that the Emergency and Trauma Departments across the country are understaffed, overcrowded, underfunded. The current doctor to patient ratio of 1:625 is far from the country’s target of 1:400, although the target itself is not without its flaws. (Read Dr Khor Swee Kheng‘s impressive article titled “How many doctors does Malaysia really need?” to understand the complexity of the said target). Also, the current economic downturn which has resulted in a 30% increase in patient movement from the private sector to the government health facilities is evidence supporting the need for more doctors.

Collectively, the doctors attest the annulment of the Critical Allowance, especially since other criteria for the incentive are easily being met by junior doctors. The abolishment will effectively result in a 15% pay cut for new doctors, pushing them further into an overwork-and-underpaid employment situation. Coupled with undesirable employment terms with many limitations and lower basic salary for junior doctors that come with being on contracts, the lack of the supplemental allowance will likely see them fall under the B40 category in the near future. This degrades the value of the healthcare profession and will result in brain drain, as junior doctors move to the private sector or other countries where they might be better compensated for the amount of work that they do.

The challenge for healthcare administrators

Healthcare managers are in for a treat. This issue brings forth the challenge of keeping employees motivated and satisfied with their job, which is no small feat given the current situation. Based on Herzberg’s two-factor theory, the annulment of the Critical Allowance will practically take away an important hygiene factor that keeps employees motivated. Along with contract employment of junior doctors which decrease their take-home income, there’s really not much left in the hygiene department. Besides, you can’t expect anyone to have any sort of motivation to work if their financial security that comes with the job is constantly under threat. Not to mention, the loss of productivity that may result once the dynamics of Equity Theory come into play.

In addition, mounting dissatisfaction with the state of their job, supervision, pay and promotion may just tip of the scale in the negative direction. This may cause a huge loss of highly-skilled employees as many would be prepared to leave the government service due to the generally undesirable working conditions. Therefore it is crucial that healthcare administrators appreciate and fairly compensate the workers while acknowledging that cost-cutting efforts such as the abolishment of the Critical Allowance may negatively impact on staffs’ morale and motivation. The long-term losses, especially in terms of the effectiveness of healthcare delivery, must be balanced against any short-term financial benefits gained from the allowance abolishment.

Consequences for patients

Ultimately, unmotivated and dissatisfied healthcare workers will not be able to deliver effective healthcare services for patients. This will lead to poor quality of service and increase patient dissatisfaction with the state of the public healthcare service. Furthermore, the potential loss of expertise as healthcare workers move to the private sector in the future will result in lack of expert care for patients, giving rise to poorer health outcomes, which may prove to be costlier, therefore, offsetting any savings from the Critical Allowance abolishment. More importantly, the annulment of the Critical Allowance is going to signal to the public that health is no longer important and that the services provided by healthcare workers in the government facilities are of lower quality and value – something we have all worked long and hard to change.


PSD’s decision to provide the Critical Allowance was made based on sound economic and financial knowledge, but its abolishment proves to be more difficult which requires more than just microeconomic and macroeconomic analysis. The apparent oversupply of healthcare workers is an administrative illusion that resulted from a lack of available posts, and should not be the main reason why the incentive is being withdrawn for future hires. Surely, there are better ways to cut government spending without resorting to a move that would demotivate healthcare workers (especially junior doctors who are already overworked, underpaid and working in understaffed, overcrowded and underfunded healthcare facilities) and erode the quality of services to patients.

Photo by Matthew Henry from Burst

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