The negative impact from portfolio balancing by the Employees Provident Fund (EPF) due to withdrawals by its members has caused the borrowing cost of the government to increase due to added interest payments amounting to RM830 million a year.

On the whole, EPF members have had access to their retirement funds of up to RM71,000 through three special EPF withdrawal schemes, namely i-Lestari, i-Sinar, and i-Citra, which benefitted more than 7.3 million members, or 58% of the 12.7 million members, with the withdrawals totalling RM101 billion.

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said this was because the interest rates of Malaysian Government Securities (MGS) have increased by an average of 100 basis points compared to the third quarter of 2020.

"Gross borrowings of MGS are RM83 billion for the whole of 2021. This means the government has to bear added interest payment amounting to RM830 million a year," he added.

"This amount should have been used for various programmes and financial aid for the people. The rise in interest rates will cause a bigger loss and increase negative sentiment on domestic financial markets."

The minister said portfolio balancing by the EPF will give a negative impact on domestic bond and equity markets. Tengku Zafrul said if a one-off withdrawal of RM10,000 is allowed, the number of eligible members who would make withdrawals might reach 6.3 million, involving additional withdrawals of more than RM63 billion.

"If the additional withdrawals were allowed, the EPF will have to carry out portfolio balancing. The EPF will need to sell more overseas investment assets in volatile market conditions, especially with the ongoing Russia-Ukraine crisis," he added, warning that if the EPF is compromised, it will reduce the fund's ability to generate dividends for its members.

"This will also affect EPF's role to provide liquidity for the government bond market where the government's borrowing cost will rise, and it has risen 100 basis points," he noted.

Tengku Zafrul said the three EPF special withdrawal programmes, namely the i-Lestari, i-Sinar, and i-Citra, were temporary pre-retirement withdrawals to help members cope with the pandemic lockdown.

"Other countries such as Australia, Chile and Peru, which had allowed early withdrawals of their retirement funds to help their citizens cope with the impact of the pandemic, no longer allowed it," the finance minister noted.

-- BERNAMA