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4 Financial Challenges Faced By Civil Servants in Malaysia

BY Team Loanstreet

Updated 07 Dec 2022

In collaboration with 

We always hear that those who work in the public sector are financially more secure and stable, but according to the fact, that’s not the case. Did you know that in February 2019, our Malaysian civil servants’ debt is accumulated by billions - RM236bil to be exact? What is happening? 

Let’s take a look at some of the financial challenges faced by civil servants in Malaysia to understand the situation. 

What's covered in this article?

1. Civil servants spend more than half of their salaries on debt repayment.

Bank Negara Malaysia (BNM) revealed that civil servants spend 52% of their salaries to pay debts, causing them to have low financial buffers to overcome emergency situations. 

The same study showed that 47% of their debts are contributed from lifestyle purposes and to sustain a standard of living such as credit cards, motor vehicles and personal financing. On top of that, civil servants are also burdened with housing debts that account for 49% of their total debts. 

This situation does not happen to only a small number of civil servants but rather a good majority of them. On top of that, the study also showed that almost all civil servants or 97% of them have some form of borrowings.


2. “Civil servants have better salary”, is a MYTH.

According to Bank Negara Malaysia (BNM), over ⅔ of civil servants in Malaysia earn less than RM5,000. For example, based on the Public Services Commission of Malaysia’s (SPA) website,  a DG29 grade teacher only earns RM1,698 a month. Would you consider such income to be proportional to the cost of living in the big cities?

Yes, just like any other working sectors out there, they will receive salary increment. But, it's only valid for a few years and will be capped at a certain amount which is known as the maximum salary, which for the abovementioned teacher would be at RM5,717. 

However, a report by The Star showed that the salary increment does not match the rising cost of living. This is because the inflation rate needs to be put into account as it affects the living cost as well. According to Khazanah Research Institute’s Director of Research Dr Muhammed Abdul Khalid, after adjusting for inflation, the real wage growth is actually negative.


3. It’s hard to get a loan from banks due to strict regulations.

Just in case you didn’t know, any salary deductions of civil servants will have to go through Accountant General’s Department of Malaysia (AG) or Angkatan Koperasi Kebangsaan Malaysia (Angkasa), organisations that manage and monitor salary deduction for zakat, EPF, membership fee, insurance and loan repayments, which includes personal financing. 

This is where the problem comes. It’s their job to ensure civil servants have a minimum of 40% net salary after deduction. So, if civil servants were to apply for personal financing and the deduction exceeds 60% of his/her salary, it will usually be rejected. Additionally, he/she will also receive disciplinary action due to excessive debts. 

This is why some civil servants opt for easier funding from Along, as it’s easy and fast. According to The Edge Markets, there were 170,000 out of 1.6mil government employees or 11% of the government employees involved in loan scam with total losses of RM340mil because they were struggling to cope with the rising cost of living.


4. Lack of financial literacy.

The Credit Counselling and Debt Management Agency (AKPK) believes that in most cases, poor financial planning, low financial knowledge and lifestyle choices contribute to debt problems. AKPK also revealed that out of 30 countries, Malaysia is ranked 26th for financial literacy based on the 2016 Report for the Organisation for Economic Cooperation and Development

But why? 

This goes both ways actually. Civil servants probably take loans to sustain their lives because they know their loan repayment will be handled by Angkasa. Financial institutions on the other hand simply dished out the loan because they are assured of the repayments through a monthly deduction from Angkasa. 

BNM also claimed that civil servants are most likely to use all of their income to sustain themselves throughout the month with no savings for emergency situation. Yes, low income may be the contributor to this debt problem, but the lack of financial literacy could also be the cause as well.


Dear civil servants friends, you don’t have to live from paycheck to paycheck. 

There are other things you can do to help improve your financial situation.  First, you need to evaluate your expenditure and get a better understanding of how financial management works. Other than that, it’s advisable for you to create a secondary income stream such as running a small business. 

If you don’t have the capital to start it, fret not. There are many governed financial providers that could help you kick start your small business like Yayasan Ihsan Rakyat (YIR) or Yayasan Dewan Perniagaan Melayu Perlis (YYP). The process is less hectic than getting a business loan.

You can get personal financing up to RM180,000 with profit rates as low as 6.50% p.a., which is better than the industry average rate of 8%. Another plus point is that both YIR and YYP’s approval process is within 2 working days, which is great if you need to need fast cash. 

Remember, personal financing is a tool to help you to lessen the financial burden, not a cure. So use it wisely. 
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About the Author

Team Loanstreet

Run by a professional human-sized team, get resourceful tips & guides from our very own library of financial articles that can help improve your financial lifestyle & make a well-informed money decision. We strive to provide you with the best service in helping you to get the most out of that DUIT!


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