Economists Concerned Over Epf Withdrawal Fiscal Consolidation Projections

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BUDGET 2021 | Economists have expressed concern over the Budget 2021 proposal to allow struggling Employees’ Provident Fund (EPF) contributors to withdraw up to RM500 a month from their retirement savings.
In addition, while they lauded additional healthcare funding, some questioned if the government will be spending enough to stimulate the Covid-19 stricken economy.
Speaking to Malaysiakini, here are comments from three economists on yesterday’s Budget speech:
Hafiz Noor Shams, economist and visiting fellow at think-tank Refsa
I think Budget 2021 is a bit too optimistic about its projections.
The deficit projection for 2020 is six percent; that is a little too low. If we compare to (after the 2008 Global Financial Crisis) in 2009 which was less severe, the deficit was much, much higher (6.7 percent) then. I think it should be higher, but the government is not setting it higher.
On top of that, the government plans to start consolidating its finances in 2021. Next year, they target a budget deficit of 5.4 percent, so you can see the government is embarking on fiscal consolidation when the economic crisis has not ended yet. 
Even worse, the fiscal deficit in 2022 is projected to be closer to four percent.


I think the government is a little bit too optimistic about the economic situation in 2021 as well as in 2022. It is trying to consolidate its finances as fast as possible so that means the fiscal deficit is being cut too soon and too fast. We are not out of the woods yet.
Because of all these assumptions, they are not spending as much as they should. And when they are not spending as much as they should, then they are not supporting the economy.
Poon Wai Ching, Monash University economics associate professor
More money has been allocated for health improvements to fight against Covid-19. This is a good move.
Starting a fund for free laptops for school children is also a good scheme. This will help make digital technologies available to the students. I hope this covers both urban and rural areas.

This is a good move, particularly for disadvantaged students who are unable to learn online due to the lack of internet access, unable to buy a laptop or suffer a lack of digital literacy. Sponsors may need to consider giving a modem to those staying in rural areas.

On the government’s move to allow a monthly RM500 EPF withdrawal for 12 months (which amounts to RM6,000) to assist those who have lost employment, my view is this is short-term relief at the expense of long-term retirement benefits.
Fund withdrawal from the EPF Account 1 should only be considered as a last resort to ease the public's financial burden.

Laurence Todd, director at think-tank Ideas

I welcome the focus the government has given in historically overlooked areas such as mental health and childcare. I also welcome the focus on attracting high technology activities to Malaysia.

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— malaysiakini.com (@malaysiakini) November 6, 2020However, there are also areas which raise concerns. EPF withdrawals put the long-term financial security of households at risk.

Many EPF savers already do not have sufficient savings to provide for adequate retirement. According to analysis, only three in 100 Malaysians can fully afford to retire - more than half of EPF contributors.
Even RM6,000 can represent a significant reduction for many accounts. Alongside the withdrawals, the government is also reducing the contribution rate (from 11 percent to nine percent) which means that savings will accrue at a slower rate.


I was also disappointed that the Budget did not go further on sustainability. After the government set expectations high, the policies did not do much to deal with the challenge of transitioning Malaysia to a low-carbon economy. - Mkini

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