SHAH ALAM - Financial loans among civil servants are expected to increase following a more than 13 per cent salary hike for the sector starting December 1.
Malaysia National Cooperative Movement (Angkasa) president Datuk Seri Dr Abdul Fattah Abdullah said two possibilities would influence the decisions of civil servants to take out financial loans.
"First, when a civil servant receives a salary increase, is there a need for them to take out a loan?
"Second, there is a possibility that civil servants will take out loans because they have the ability to repay them. So there is a possibility that the debt rate will increase.
"However, civil servants are still subject to government circulars issued earlier stating that their net income must be 40 per cent of their original salary.
"This means that any loan deductions should not exceed 60 per cent of the salary," he told Sinar.
He said that based on current records of salary deductions through Angkasa, loans involving personal financing were recorded higher than other debts.
"Referring to the statement by the Prime Minister as Finance Minister last March, the total household debt recorded amounted to RM1.53 trillion at the end of 2023.
"The largest portion of household debt by type of financing is housing loans (60.5 per cent), followed by vehicle loans (13.2 per cent) and personal financing (12.6 per cent).
"The positive aspect is that the annual growth of household debt is driven mainly by housing loans and vehicle loans following various home ownership incentives offered by the government and private sectors, as well as sales and service tax (SST) incentives for motor vehicle purchases between 2020 and 2022," he said.
Asked whether there was a tendency for some individuals to become addicted to debt, Fattah said that was not the case, but rather the need to borrow aligns with the need to cope with the high cost of living, especially in urban areas.
"A salary increase will certainly help them cope with the current high cost of living, which is one of the factors prompting civil servants to increase their debt.
"In fact, this scenario is not only happening among civil servants but also involves the private sector.
"So to address the problem of being burdened with debt, relevant authorities need to conduct more awareness programmes, especially in financial management literacy," he said.
However, he remained confident that civil servants would spend wisely and suggested that they join cooperatives to reap more benefits.
"With the additional salary they will receive, it is advisable to use it to settle small debts such as credit cards.
"Civil servants can also invest in profit-generating instruments such as increasing shares in cooperatives.
"This can help cooperatives undertake larger projects and provide recurring benefits to members," he explained.
In the meantime, he also advised civil servants with a lot of debt to manage their finances well.
"They can discuss debt restructuring with financial providers," he said.