PETALING JAYA • Malaysian civil servants spend more than half of their monthly salaries repaying debts, leaving them with a limited financial buffer to weather shocks, according to a study by the country's central bank.
The risk is more apparent for those earning less than RM5,000 (S$1,660) monthly, Bank Negara Malaysia said in a quarterly report released on Wednesday.
After taking into account monthly expenditure on basic necessities and debt obligations, these civil servants are left with only 15 per cent or about RM360 to RM586 to spend on discretionary items.
Almost half, or 47 per cent, of the borrowings are for consumption purposes such as personal financing, motor vehicles, credit cards and others. This is higher than the national average of 35 per cent.
"Personal financing" - paying for their lifestyles - is one of the major contributors to debt accumulation by civil servants, amounting to 34 per cent of their total debt compared to the national level of 15 per cent, the report said.
Housing debts account for 49 per cent 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 said.
Total outstanding civil servants' debt as at end-February - equivalent to 20 per cent of total household debt or 17 per cent of the GDP.
It also said the debt-repayment capacity of civil servants is lower than average borrowers at the national level. While this currently posed limited financial stability risks, it could have broader socio-economic implications.
As at end-February, the total outstanding civil servants' debt stood at RM236 billion, equivalent to 20 per cent of total household debt or 17 per cent of the GDP. This is higher than levels observed in 2012, at 18 per cent of total household debt or 15 per cent of the GDP.
The study covered 1.26 million out of 1.6 million civil servants, comprising permanent federal government employees and police.
The central bank urged the government to accelerate its effort 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.