May 7, 2021 House of Trust

FMT Article: Increasing Household Debt-to-GDP highlights Vulnerability of lower-income households

Photo by FMT

The article written by Samuel Chua was published in Free Malaysia Today

PETALING JAYA: Malaysia’s household debt-to-GDP ratio has hit 93.35%. However, most households have the ability to repay their debts.

Benedict Weerasena of Bait Al Amanah pointed out that both the aggregate financial assets-to-debt ratio and liquid assets-to-debt ratio were higher than the “prudent threshold of 1 time”.

Liquid asset refers to cash in hand or an asset that can readily be converted into cash.

Weerasena explained that a ratio of 1 time means the total financial assets are equal to the total debt and, therefore, a household has sufficient financial assets to cover its debt.

“The higher the ratio, the more financial assets the household has compared to its debts, which in turn means they have enough financial health,” he told FMT.

Currently, he said, the aggregate financial assets-to-debt ratio is 2.2 times and the liquid assets-to-debt ratio is 1.5 times, according to Bank Negara Malaysia.

However, he said one major concern is the vulnerability of lower-income households who are already stretched financially, and will be at risk of defaulting on loans if there is another economic shock in the near future.

“This financial stress is further exacerbated by the uneven recovery in the labour market.

“With more vulnerable households affected by unemployment and underemployment, greater economic inequality is set to persist,” he said.

Weerasena said Malaysia needs to improve and expand social safety nets for vulnerable households in this unprecedented crisis.

He said one-off cash transfers should be reconsidered and replaced with target basic income provision for these households.

“For now, a blanket loan moratorium as a ‘one-size fits all’ solution is unnecessary. Instead, targeted repayment assistance measures tailor-made to the needs of each borrower are the best way forward,” he said.

Denison Jayasooria, an expert in poverty studies, said the higher debt ratio is understandable due to the current economic crisis and would likely pass in the coming six to eight months.

However, he also said the struggles of vulnerable households without a social safety net could become alarming.

“More data collection and analysis are required to identify how people become victims of formal or informal schemes which lead to situations where people are racking up higher household debt,” he told FMT.

Jayasooria said debts to loan sharks and money lenders as well as credit card debt could lead to more damage for low-income families.

“The government should increase enforcement on illegal money lending and create community-based savings and loan schemes through self-help groups and cooperatives to decrease the level of long-term debt,” he said.

Recently, opposition leader Anwar Ibrahim said the record level of 93.3% household income debt-to-GDP ratio at the end of 2020 is of concern.

He said there were people who were forced to seek more loans and take on more debt, thus condemning themselves to debt traps.

“This debt disaster will derail any hopes of Malaysia making an economic recovery in 2021, let alone in the next few years, if it is not confronted immediately,” he said.

He urged Prime Minister Muhyiddin Yassin to direct his economic team to think of a new strategy in easing the burden of the rakyat.

Related Posts

Response to the Ministry of Economic Affairs Performance Report 2019

January 28, 2020

January 28, 2020

Recently, the Ministry of Economic Affairs (MEA) published a report on the ministry’s initiatives, achievement and performance in Malaysia’s socio-economic...

Response to Economic Stimulus Package 2020

March 4, 2020

March 4, 2020

The stimulus package was still announced despite the past week’s political headwinds, indicating the commitment of the interim Prime Minister...

Overview of Bank Negara Malaysia’s Economic and Monetary Review 2020

April 1, 2021

April 1, 2021

Overview prepared by Benedict Weerasena (Economist, Bait Al Amanah) Bank Negara Malaysia released its annual Economic and Monetary Review 2020...

Artikel Malaysia Gazette: UMNO tidak boleh berpegang Presiden jadi PM – Sahrir

May 7, 2021

May 7, 2021

Gambar oleh Mohd Ashraf Mustaqim Badrul Munir KUALA LUMPUR – UMNO tidak lagi boleh perpegang kepada tradisi bahawa presiden parti...

BNM Yakin Ekonomi Malaysia Bakal Pulih

April 19, 2021

April 19, 2021

Artikel ini diterbitkan di Dewan Ekonomi Persoalan besar yang terus diajukan oleh hampir semua pihak sekarang ialah tentang iklim ekonomi...

UMNO di Kandang Tertuduh

August 19, 2019

August 19, 2019

TIADA ketaatan yang harus diberikan kepada sesiapa yang mungkar dan ingkar kepada Tuhan. Ketaatan terhad hanya kepada perkara yang terpuji...

Malaysia and Biden’s Presidency

January 22, 2021

January 22, 2021

*Image Source: Financial Times 20th January marks the inauguration of Joe Biden as the 46th President of the United States,...

Sektor Pelancongan Johor: Potensi Baharu Ekonomi

February 26, 2018

February 26, 2018

*Gambar yang menunjukkan tempat menarik Johor ini dipetik daripada Tourism Johor Pembangunan sektor ekonomi negeri Johor kini semakin pesat dan...

‘Sang Pemimpin, Berkata Benarlah Kamu!’

February 12, 2019

February 12, 2019

SUATU waktu dulu, saya pernah mengunjungi The United States Air Force Academy (USAFA) di Colorado Springs, Amerika Syarikat. Lawatan tersebut...

Team Johor – The Spirit of Volunteerism

January 10, 2018

January 10, 2018

Volunteerism has no expiry date.  Doing good has no time limit. It is something we do every time the opportunity...

Ekspo Johor Berkemajuan Jadi Tumpuan Rakyat

January 17, 2018

January 17, 2018

Gambar dipetik daripada halaman facebook rasmi Ekspo Johor Berkemajuan 2017 Bermula 9 hingga 14 Oktober 2017 yang lalu, Dataran Mahkota,...

“Re-examining Urban Poverty” Pre-Webinar Press Statement

April 9, 2021

April 9, 2021

*Photo Credit: Nur Ismail Photography Historically, since the introduction of the New Economic Policy 1971-1990 (NEP), Malaysia has demonstrated strong...

Rethink the EPF Withdrawal Scheme

March 25, 2020

March 25, 2020

As part of the revised economic stimulus package, Employees Provident Fund contributors under the age of 55 are allowed to...

Stand With Kashmir

February 1, 2021

February 1, 2021

*Image Source: AFP On the 5th August 2019, the autonomy of the region of Jammu and Kashmir was stripped off...

Comments
Leave a Reply

Your email address will not be published. Required fields are marked *