KUALA LUMPUR: The anticipated withdrawals from Employees Provident Fund (EPF) Account 3 and salary increment for civil servants are poised to invigorate private consumption, albeit at the expense of widening the fiscal deficit.
According to Hong Leong Investment Bank (HLIB), an annual withdrawal of RM25 billion from Account 3 is projected to bolster private consumption growth by 1.2 percentage points (ppt), while a RM10 billion raise in civil servants' salaries would further contribute 0.5 ppt to private consumption growth.
HLIB and Bank Negara Malaysia foresee private consumption growth rates of 5.5 per cent and 5.7 per cent for 2024, respectively.
In terms of the potential fiscal deficit impact, HLIB noted that the RM10 billion salary increase for civil servants translates to 0.5 per cent of GDP.
"Separately, we highlight that the effect on private consumption and fiscal deficit may potentially be neutralised if fuel subsidies are rationalised– though this remains fluid, " it said.
The Finance Ministry has set a target of 4.3 per cent for this year's fiscal deficit, with a further reduction to 3.5 percent slated for 2025.
Effective May 11, 75 percent of EPF contributions will be directed to Akaun Persaraan, while the remaining 15 percent and 10 percent will be allocated to Akaun Sejahtera and Akaun Fleksibel, respectively. The dividend rate will remain consistent across all three accounts.
To provide context, the previous allocation designated 70 per cent to Account 1 (now renamed Akaun Persaraan) and 30 per cent to Account 2 (now Akaun Sejahtera).
Upon implementation, the balance in Akaun Fleksibel will commence at zero. However, members have the opportunity to transfer a portion of their savings from Akaun Sejahtera as an initial deposit into Akaun Fleksibel during a one-off opt-in window spanning from May 12 to August 31, 2024.
The EPF anticipates that the opt-in transfers and subsequent withdrawals from Akaun Fleksibel will total between RM20 and RM30 billion.
"We reckon that the expected RM25 billion (midpoint of the estimated range) Akaun Fleksibel withdrawals should not have a significant tightening of liquidity for the local bourse.
"This amount constitutes 2.2 per cent of EPF's RM1.14 trillion asset under management as of the end of 2023, of which 42 per cent is allocated to equities, 46 per cent fixed income, 5.0 per cent money market, and 7.0 per cent others," HLIB said.
Compared to the special EPF withdrawal schemes offered during the pandemic, the expected RM25 billion outflow would be higher than in 2020 (i-Lestari: RM20.8 billion), but lower than in 2021 (i-Sinar + i-Citra: RM80.1 billion) and 2022 (special withdrawal facility: RM44.6 billion), it noted.
