KUCHING: An economist opposes the move to allow the Employees’ Provident Fund (EPF) to support loans, as Malaysia faces one of the highest household debt-to-GDP ratios globally.
Centre for Market Education (CME) economist said that many Malaysians borrow to cover rising costs and unexpected emergencies, leaving them vulnerable to economic fluctuations.
According to Bank Negara Malaysia, the country’s household debt now represents 84.5 per cent of its Gross Domestic Product (GDP).
“As the world anticipates an economic slowdown, savings are becoming scarce. This is a cause for concern,” Ferlito warned.
“Families face higher risk of financial difficulties such as job loss.”
Ferlito pointed out that Malaysia’s real economic challenge is not solely focused on GDP growth but also about giving new life to the importance of investments and savings.
“Long-term economic growth relies on investments driven by actual savings, which balance out consumer spending,” he said.
The key to achieving long-term sustainable growth, according to him, involves a balance between investments and savings, rather than a focus on investments and consumption alone.
He added that to achieve sustainable growth, an increase in consumer savings is necessary before increasing the demand for loans to be used for investments.
However, Ferlito believed that the recent EPF move could undermine future financial stability, as it may encourage the perception that the fund is a resource for “immediate needs” instead of a long-term savings tool.
On the topic of targeted withdrawals, Ferlito said that this option should be disallowed in order to safeguard the retirement savings of contributors. He stressed that even though targeted withdrawals don’t involve government funds or intervention, allowing such access to the EPF could reduce individuals’ retirement savings.
Moreover, he suggested that shrinking EPF savings could constrain the fund’s capacity to diversify and fortify its investment strategy for better returns.
“This will affect all contributors, even those who do not withdraw their EPF contributions. If the overall return is low, it impacts everyone,” Ferlito said.
Over 4 million EPF contributors are now eligible for loans ranging from RM3,000 to RM50,000 from banking institutions, utilising their Account 2 balance as backing. The conventional interest rate or the Islamic profit rate charged by these banks will range between 4 per cent and 5 per cent annually.
These rates are significantly lower than the current market interest rates, which stand between 8 per cent and 15 per cent. As an initial step, MBSM and Bank Simpanan Nasional (BSN)are participating in this initiative.
Phase 1, commencing today (April 7) and lasting for one year, allows eligible members aged 40 or older to apply, depending on the readiness of participating banks. The launch date for Phase 2, targeting members under 40 years of age, will be announced in the near future.
