PETALING JAYA: The special Employees Provident Fund (EPF) withdrawal and increments to the nation’s minimum wage will lead to better spending power for the public, say economists.
Sunway University economics professor Dr Yeah Kim Leng said the special withdrawal of up to RM10,000 had increased spending power especially of those from the lower and middle income households.
“Given that these groups have likely depleted their savings to stay afloat during the Covid-19 pandemic, the special withdrawal provides a lifeline.”
He said these EPF members should spend their savings on necessities or make investments to replenish their retirement funds.
Old-age poverty is looming if members do not take steps to replenish their savings, he said.
Yeah said the minimum wage increment also provided more disposable income for the said groups which, in turn, provided better spending power.
“Apart from purchasing necessities, the extra income can also be used to replenish retirement or emergency savings used during the pandemic,” he said.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid concurred, saying these withdrawals gave those from the lower to middle income households better spending power.
“With this new spending power, the money should be used productively to improve one’s quality of life in the long run,” he said.
He said the next course of action for these members is to rebuild their retirement funds.
“It is crucial for Malaysians to realise the importance of retirement savings. More awareness campaigns should be done to educate people on this,” he said.
On the minimum wage increment, Afzanizam said although it was a good move, a collective effort should be carried out by the various government ministries to create higher paying jobs for young graduates
“The various bodies should realign and create the right incentives for businesses to enter high valued activities. This then creates more job opportunities for graduates in the long term,” he said.
Malaysia University of Science and Technology Provost for Research and Innovation professor Geoffrey Williams said the 25% increment to the minimum wage would raise spending and consumption power for the recipients.
“Essentially, it is a distribution of money from rich employers to poor employees who spend more of it and so it will have a high multiplier effect,” he said.
He said these groups usually spent in small medium enterprises, which was good for the local economy.
“In the long term, the higher costs will also encourage firms to switch to productive technologies and better business models instead of relying on low-paid and low-valued activities,” he said.
On the EPF withdrawals, Williams said the total amount of RM40.1bil was significant in terms of spending power.
“However, in the survey on what members would use the money for, 40% said they would use it for essential spending, with 26% paying off debt, 8% to increase savings and 27% using it for other things such as making investments.
“Hence, not all of this money will go into extra spending power or consumption in the marketplace,” he said.
He also noted that fewer people took smaller amounts from this round of withdrawals, and those that did so tended to be richer.
Williams said that the best thing EPF members could do to maximise their risk adjusted returns was to put the money straight back into their accounts.
Fomca president Datuk Dr Marimuthu Nadason advised members to be thrifty.
“You worked hard for it, so use it wisely. Buy only the essentials and use it for a good purpose,” he said.