Opposition MP warns of 'debt trap' among civil servants

New Straits Times

4 days ago

KUALA LUMPUR: An opposition MP has called on the government to address the rising debt among civil servants, with some middle-income individuals reportedly being approved for loans worth hundreds of thousands of ringgit.
Abdul Latiff Abdul Rahman (PN-Kuala Krai) said the matter required urgent attention as it could drive civil servants into long-term debt traps.
In a supplementary question to Deputy Finance Minister Lim Hui Ying, Latiff said the issue could also affect household financial stability.
"Although you said the trend is still under control, if this happens to civil servants, it could open the door to corruption. With their current income, they will no longer be able to bear multiple loan repayments.
"If it happens to the general public, there is concern they could fall prey to unlicensed moneylenders and loan sharks," he said.
Latiff also asked whether the government planned to replace or stop personal financing in favour of purpose-specific financing to prevent the debt trap among civil servants from worsening.
Lim, who is also the Tanjong MP, said household debt levels must be viewed holistically, taking into account household financial assets, which are significantly higher.
"At the macro level, total household debt as of March 2025 stood at RM1.65 trillion, equivalent to 84.3 per cent of Gross Domestic Product (GDP). This shows little change compared with the end of 2024.
"Therefore, household debt levels must be seen in a holistic manner, particularly considering that household financial assets are much higher, amounting to RM3.45 trillion in the same period.
"In aggregate, household financial assets remain 2.1 times higher than debts, thus providing a strong financial buffer for households," she said.
Commenting on the control of financial loans among civil servants, she said approvals given by financial institutions in the country were subject to the responsible financing practice policy document issued by Bank Negara Malaysia, in effect since 2012.
Through this policy, she said, the government ensured household finances remained manageable in line with repayment capacity.
"In general, financial institutions assess a borrower's capacity by taking into account a minimum net disposable income as well as the debt service ratio (DSR). As at the end of 2024, data showed the DSR was at a prudent level of 34 per cent.
"There are also specific control measures for civil servants through Regulation 13 of the Public Officers (Conduct and Discipline) Regulations 1993, which stipulates that an officer must not be in serious debt, with net monthly salary not falling below 40 per cent," she said.