PETALING JAYA: Civil servants spend more than half of their monthly salaries repaying debts, leaving them with limited financial buffers to weather shocks, according to a study by Bank Negara.
The central bank’s Financial Stability Review noted in its box article titled “Civil Servants’ Debt: Risks and Policy Considerations” that this is more apparent in those earning less than RM5,000 monthly.
After considering their monthly expenditure on basic necessities and debt obligations, they are left with only 15% or about RM360 to RM586 to spend on discretionary items.
Almost half of the borrowings or 47% are for consumption purposes such as personal financing, motor vehicles, credit cards and others. This is higher than the national average of 35%.
Personal financing has been one of the major contributors to debt accumulation by civil servants, amounting to 34% of their total debt compared to the national level of 15%.
Housing debts account for 49% of civil servants’ debts.
“Based on anecdotal evidence, personal financing is commonly used to sustain the standard of living and lifestyle choices of borrowers and for small business use,” the central bank article said.
It also stated that the debt repayment capacity of civil servants remained lower than the average borrowers at the national level and while this currently posed limited financial stability risks, it could have broader socio-economic implications.
As at end-February this year, the total outstanding civil servants debt stood at RM236bil, equivalent to 20% of total household debt or 17% of the GDP. This is higher than levels observed in 2012 at 18% of total household debt or 15% of the GDP.
The study, which covered 1.26 million out of 1.6 million civil servants, comprising permanent federal government employees and police, showed that 97% of them had some form of borrowings.
Credit obtained from Non-Bank Financial Institutions (NBFI) amounted to 62%, significantly higher than the national average of 18%.
“By geographical location, close to half of those indebted live in four key urbanised states, where costs of living are relatively higher. About two-thirds of civil servants earn less than RM5,000 per month,” it said.
The central bank also urged the government to accelerate its efforts to increase the supply of affordable homes and improve the rental market as a viable alternative to home ownership, as houses are “seriously unaffordable” in the current environment.
“Given that income is one of the main determinants of financial buffers and debt servicing capacity, relevant reforms to strengthen links between civil servants’ pay and rewards to productivity would have an important impact on improving the financial resilience of civil servants.
“This would also improve the delivery of public services as well as enhance the efficiency of the broader economy,” the report said.
It said policy priorities, including measures to improve financial literacy and strengthen NBFI lending practices and oversights, were vital to achieve a more sustainable level of civil servant debt accumulation and avert the build-up of risks in the future.
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