PETALING JAYA: Malaysians could well embark on a spending spree with money freed up at the Employees Provident Fund (EPF) with the launch of Account 3 and civil servants getting a 13% pay hike at the end of the year.
Economists see the consumption boost from monies put into the EPF’s Flexible Account, more popularly known as Account 3, as an avenue to spur consumer spending in the short term.
On top of that, Putrajaya had also announced on Labour Day a pay hike from December onwards for civil servants amid rising prices and a persistently ailing ringgit, which is bankrolled by a government allocation of RM10bil.
The twin moves are anticipated to contribute indirectly to the earnings of Corporate Malaysia, particularly in the consumer sector.
This is especially pertinent in view of the impending targeted subsidy initiative that is set to commence in the second half of 2024, as belts are no doubt going to be tightened in the majority of Malaysian households.
Executive director and veteran economist at the Socio-Economic Research Centre (SERC) Lee Heng Guie believes that the double move will cushion the expected impact of subsidy rationalisation on the cost of living.
This is because energy subsidies will become targeted at the less well-to-do segments, resulting in many Malaysians having to fork out more for fuel and power, which will lead to an increase in prices overall.
In addition, he said cash assistance is also expected to be given to targeted households and individuals during the targeted subsidy implementation.
“Going by the past EPF withdrawal trend, it is expected that some contributors will draw down from the Flexible Account –popularly known as Account 3 – to spend on basic necessities, purchase consumer durables, leisure or repay credit card debts, depending on the amount of savings that the contributors would reload from Account 2 (Sejahtera) to Account 3,” he told StarBiz.
However, he reiterated that Account 3 will start with new contributions when it goes live on May 11, and hence, the initial amount of deposits into the account – estimated to be about RM25bil – would be small for low-salaried contributors.
Commenting on the proposed salary hike for civil servants, Lee said that the marginal propensity to consume (MPC) is likely to be high, depending on the quantum of hikes and salary grades, despite acknowledging that a percentage of this group may instead choose to save for emergencies and contingency purposes.
In summary, the MPC is the proportion of a raise that is spent on the consumption of goods and services, as opposed to being saved.
Lee added: “Overall, the setting up of Account 3 and proposed salary hikes for civil servants are expected to lift households spending and create demand for goods and services, and this bodes well for the consumer and retail sectors such as consumer durables, digital gadgets, passenger cars, restaurants, accommodation, leisure and tourism.
“As a result, this will improve the sales and revenue of businesses and companies selling retail goods and services.”
Chief executive at the Center for Market Education Carmelo Ferlito concurred with Lee that the existence of Account 3 will nudge up consumption, but thinks the jury is still out on the case of the civil wage hike.
“I think it is best to keep these two moves separate. This is because the civil servants’ wage hike would produce different results according to the recipients, in particular depending on current income level and saving attitude,” he told StarBiz. As to how these two initiatives will blend in with the oncoming subsidy rationalisation, especially on whether they could neutralise the latter’s inflationary effects, Ferlito is remaining on the fence as the mechanism for the rationalisation has yet to be unveiled.
Meanwhile, a portfolio manager with a local fund house agreed with SERC’s Lee that companies in the consumer sector should benefit in the short to medium term from the flexibility that Account 3 will provide.
However, she reemphasised the point that it is not healthy for a country’s economy to rely heavily on domestic consumption, more so if it could in some way compromise old-age financial security.
It is also interesting to observe that in the past week, several experts have encouraged caution in utilising Account 3 once it comes online, its double-edged sword properties too obvious to ignore.
For example, chief executive at Tradeview Capital Ng Zhu Hann had remarked that financial maturity is a necessity in order for the flexible account to be effective.
Arguing that pre-retirement withdrawals of Account 1 began under the justification of the lockdowns, he said it is a floodgate that once opened, would be difficult to shut.
“EPF savings is meant for rainy days. It is a social protection scheme provided by the government for its citizens, not a personal piggy bank to meet one’s lifestyle choice.
“So, for those who are excited about Account 3, do take a pause and exercise discretion when making any withdrawal decision. If possible, just leave your money in the EPF and let it work for you after a lifetime of hard work,” he advised.
Likewise, researchers at the Khazanah Research Institute Hawati Abdul Hamid and Puteri Marjan Megat Muzafar contend that many private sector employees remain unregistered with the EPF, and among those who do, a significant proportion have savings that are insufficient for a comfortable retirement.
