Tapping into retirement savings of lower income groups to boost economic growth may not be the best approach
by ASILA JALIL / pic by MUHD AMIN NAHARUL
THE Employees Provident Fund’s (EPF) i-Sinar facility is a positive move, but it may not be the right tool for the government to tap into to boost the economy.
Bank Negara Malaysia deputy governor Datuk Abdul Rasheed Ghaffour said the withdrawals made via i-Sinar support consumption and lead to an immediate positive impact to the local economy.
However, despite its ability to support consumption, Abdul Rasheed also stressed that it is vital to strengthen the buffer in the retirement savings that have been utilised via the facility.
“That is where the labour market reform is vital to ensure people have better paying jobs, better income and can save further to increase their financial buffers as retirement savings.
“Reforms such as the social protection reform is also important particularly in the social insurance aspect,” he said in a webinar organised by the Malaysian Economic Association (MEA) yesterday.
MIDF Amanah Investment Bank Bhd head of research Imran Yassin Md Yusof echoed Abdul Rasheed’s view and reiterated that the impact would be positive to the economy. He also noted that consumption would be further induced due to the lift of criteria for the facility which was only available to the vulnerable groups previously.
He added that the utilisation of the withdrawals could drive retail participation in the equity market.
“We have seen retail participation come in a big way last year and it seems that the trend is going to stay for this year.
“With i-Sinar, we can expect retail participation to continue in the stock market,” he said.
However, MEA past president and trustee Datuk Dr R Thillainathan highlighted that generally the lower income groups do not have sufficient savings for retirement and therefore tapping into their retirement savings to boost economic growth may not be the best approach.
“It is not right for a country to rely on its lower income groups to draw on their limited retirement savings to support the economy. That is not the way we should be conducting counter cyclical policies.
“Counter cyclical policies have to be conducted in other manners, like monetary policy and fiscal policy of the likes. Not through the use of retirement savings,” he said.
He said the government had relied on other measures in the past to stimulate economic growth such as the reduction of retirement contribution rate, but the current approach that utilises one’s retirement savings is “unorthodox” and is not the right direction.
Commenting on the issue, Amundi Malaysia Sdn Bhd CIO for fixed income Eridani Tutiana Jusat said the withdrawals from i-Sinar have also raised concerns in the bond market as EPF is a prominent investor in the Malaysian government bond.
Less support from EPF on government bonds will weigh on the market, opined Eridani.
“In terms of liquidity for the market, we see that liquidity is there. On the investor side, we are a bit cautious how much the market can be supported with any less support from EPF as an investor,” she said.
Meanwhile, touching on the foreign direct investment (FDI) into the country, Abdul Rasheed stressed that Malaysia should address the needs from FDIs instead of comparing or competing with other countries in the region such as Indonesia or Singapore.
Malaysia requires quality investments that can spur high quality jobs and contribute to the growth of the country, said the deputy governor.
He added that Malaysia should also attract FDIs that could drive the local economy towards “innovation-led” growth.
“What is important is to know what kind of investments do we get into and what kind of investments do we attract? What kind of jobs would these investments create?
“We want investors to come in and help drive our economy towards innovation-led growth,” said Abdul Rasheed.