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This article first appeared in The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020

EVERYONE knows they should save for a rainy day.

But, just how many Malaysians are prepared for such a day? And even worse — prepared for what threatens to be a prolonged thunderstorm, given that the Covid-19 pandemic has yet to be contained since its outbreak in December?

With the successful development of a vaccine for the coronavirus said to be months, if not more than a year away, the wait will be interminable for many, particularly those with minimal savings.

A survey conducted by the Department of Statistics (DOS) during the Movement Control Order (MCO) found that more than two-thirds (71.4%) of self-employed ­respondents have sufficient savings of less than a month, while 82.7% of private employees have sufficient savings up to two months.

The results of the survey also revealed that 78.9% of employees of government-linked companies (GLC) and 75.2% of multinational companies (MNC) have sufficient savings up to four months.

Peck Boon Soon, head of Asean economics research at RHB Investment Bank Bhd, says the DOS survey gives an idea of how long Malaysians’ savings will last — ­between one and four months.

“As recovery from the Covid-19 pandemic is likely to be gradual and (will) take some time, they may need more than one to four months of savings to tide them over,” he points out, adding that the business environment is likely to be tough even after the MCO is lifted.

Hawati Abdul Hamid, senior research associate at the Khazanah Research Institute (KRI), says the survey shows the different levels of savings — between workers in large and presumably more stable companies such as GLCs and MNCs, and workers in private-sector companies generally or self-employed workers.

“Self-employed workers make up close to 20% of the Malaysian workforce or 2.6 million workers, based on the 4Q2019 Labour Force Survey. Unlike other workers with employer-employee relationships, the self-employed — whether street vendors, freelancers or contract workers — typically do not enjoy employment-related benefits such as paid leave and medical benefits. Some earn daily rated wages or piecemeal (wages), and the lockdown due to Covid-19 will make them even more vulnerable because of loss of income and lack of savings and social protection,” she says.

“As some of them are not registered with social protection ­authorities, it may be challenging to implement policies that are meant to assist this segment of vulnerable society,” she notes, adding that the survey was conducted based on purposive sampling and may not represent the situation faced by all Malaysians.

Even so, Hawati says the data is  useful to shed light on what is currently happening on the ground.

OCBC Bank economist Wellian Wiranto finds the high number of respondents in the survey who indicate they do not have enough savings to tide them over for one month “quite staggering”.

“There have been measures rolled out by the authorities to help cushion the blow. These include the cash handouts for the B40 and M40 groups that might correlate heavily with the demographic of respondents as described. The six-month loan moratorium announced by Bank Negara should help as well,” he says.

Nonetheless, given the continued blows to the economy — with yet another extension to the MCO — Wellian observes that even more relief measures might be needed.

The DOS survey also found that the longer an employee has been working, the more prepared he or she is in terms of savings: 69.7% of those working less than a year and 63.2% of those working between one and three years reported that their savings will run out in less than a month.

Meanwhile, 25.4% of those surveyed who have been working four to 10 years and 27.5% of those working 11 to 20 years have sufficient savings for up to two months.

Some 11.4% of those working 21 to 30 years and 11.7% of those working over 30 years have sufficient savings for up to four months.

Only 2.2% of those working less than a year have savings that can last more than six months compared with 14.3% for those working 21 to 30 years and 17.4% for those working more than 30 years.

The DOS carried out the online survey from March 23 to 31, and 168,182 respondents participated in it. Civil servants were excluded from the analysis.


Dipping into EPF reserves

The Employees Provident Fund appears to be the most common form of savings.

However, not all households save with the EPF. Active EPF contributors make up only 52% of members, or 7.36 million, out of a total membership of 14.19 million in 2018.

Looking at EPF data, about 876,886, or 12% of its members, had less than RM3,000 in the provident fund as at end-2018.

If we go by the rule of thumb of having six months’ worth of expenses as savings for emergencies, the DOS survey shows that many fall short, Hawati says.

She observes that this is also a trend, as seen from savings data such as that of the EPF. “More than 80% of EPF contributors do not have the minimum savings target of around RM280,000 by retirement age, and the bottom 20% contributors have average savings of less than RM7,000,” Hawati says.

“While the government recently allowed contributing EPF members to withdraw RM500 monthly from their Account 2, the bottom 20% of members do not have an adequate amount to withdraw to last them for 12 months,” she points out.

Hawati says KRI’s calculation of residual income (income remaining after expenditure) based on data from its Household Income Survey 2016 indicates that the residual income level has dropped for all income classes compared with the 2014 level.

“Worryingly, for households earning below RM2,000, the income remaining after accounting for inflation (that is, real residual income) was only RM76 in 2016, falling from RM124 in 2014. This highlights that households earning below RM2,000 are very vulnerable to any economic shocks or emergencies, such as the one we are experiencing now.”


Gross national savings trending down

A closer look at Bank Negara Malaysia data shows that gross national savings (GNS) dropped to 24.9% in 2019 from 26.7% in 2018 and 29.2% in 2017.

In 2018, Malaysia’s gross savings was 26.7% of its GDP, which is markedly lower than Singapore’s 46% for the same year. Significantly, it was also lower than our neighbours Indonesia and Thailand, as both had gross savings of 32%.

Peck describes the fall in Malaysia’s national savings rate as “inevitable”, given the continued reliance on consumer spending to drive economic growth over the last few years.

The downward trend is becoming a major concern, however, as it suggests that Malaysians have not earned enough to cover their expenses and continue to dip into their savings to sustain spending. This is not likely to be sustainable, Peck stresses.

Meanwhile, OCBC’s Wellian reckons that the broader drop in the savings rate over the years in itself is not a flashing red light.

“Put in the context of rising domestic consumption as a larger part of the economy, it is not surprising as well. Put against the household debt level that is relatively high, however, it does remind us of the servicing costs for the loans. While the loans payment moratorium gives a reprieve to borrowers for a while, it cannot last forever, so the battle to curb indebtedness will have to go on, hopefully aided by an eventual economic recovery down the road,” he says.

While GNS is declining, it has yet to reach a negative number, indicating that the economy as a whole is not spending more than it produces, Hawati notes.

“... declining GNS could be a source of concern as it may limit our capability to undertake investment to generate productive economic activities.

“[However,] from the savings-investment gap perspective — we typically look at the current account balance — the surplus has widened to RM49.7 billion or 3.3% of GDP in 2019 (2015: 3.1%),” she adds.

While this reflects a sharper decline in investment, Hawati indicates that the improvement was driven by a sharper increase in exports compared with imports, as well as a lower deficit in the primary income and services accounts.

“Overall, this shows that our current account registered a healthy surplus. However, this is for 2019. The prospects for 2020 remain uncertain as the economy is facing an economic downturn due to the Covid-19 pandemic,” she adds.


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