KUCHING: The proposal to use Employee Provident Fund (EPF) Account 2 as collateral for personal bank loans has come under fire from an economist, warning that it could exacerbate Malaysia’s already high levels of household debt.
Speaking out against it, Carmelo Ferlito warned that such a move could lead to increased household debt and undermine the purpose of the EPF as a retirement savings scheme.
“I do not look favourably upon this move, given that Malaysian household debt over Gross Domestic Product (GDP) is already alarmingly high, standing at around 85 per cent of the GDP.
“So my biggest fear is that the move may further nudge in favour of more debt,” said Ferlito, who is affiliated with the Centre for Market Education (CME).
He argued that such a move could encourage consumers to take on more debt than they can afford, which could lead to financial difficulties down the line.
In addition to concerns about household debt, Ferlito also raised questions about the government’s criteria for defining an “emergency” that would qualify contributors to use EPF funds as collateral for loans.
“The category of ’emergency’ is currently very vague,” he said when contacted yesterday.
He said the lack of clear guidelines made it difficult to determine when the use of EPF funds as collateral for loans was appropriate and when it was not.
“This ambiguity raises serious concerns about the potential risks and unintended consequences of this proposal,” he said.
During the Budget 2023 winding-up speech in Dewan Rakyat recently, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced the proposal to use EPF Account 2 as collateral for personal bank loans, stating that it would only be available to those in desperate need of funds who are forced to apply for bank loans.
Earlier Anwar had reiterated that he did not support another round of EPF withdrawals.
The EPF has released a statement in response to the proposal, indicating that it will take a cautious approach by carefully considering all relevant factors involved to ensure a smooth implementation.
It remains to be seen how it will balance the potential benefits and risks associated with using the funds as collateral for personal bank loans.
