A total of 3,602 civil servants were declared bankrupt between 2020 and September 2024, according to Malaysian Insolvency Department. The highest number of cases was recorded in 2020, with 1,009 bankruptcies, followed by 678 cases in 2021, 621 in 2022, and 628 in 2023. In the first nine months of 2024 alone, 666 cases were reported.
A major factor driving insolvency among public sector workers is personal loans. For every 10 bankruptcy filings last year, 1.4 were civil servants. This has prompted top government leaders, including Chief Secretary to the Government Tan Sri Shamsul Azri Abu Bakar, to repeatedly warn about the rising household debt among public sector workers.
The Chief Secretary attributes the rise to largely lifestyle choices. He pointed out that government employees with high debt commitments often live beyond their means, citing instances where they purchase cars worth nearly 20 times their monthly salary or frequently upgrade to the latest high-end smartphones and laptops.
Social media validation plays a role in this behaviour, commonly referred to as “FOMO” (fear of missing out). This phenomenon describes the urge to purchase expensive items to keep up with trends and peers. The “Jones” effect.
As a result, many civil servants accumulate credit card debt and subsequently take out large personal loans to repay their initial obligations, often to lower their monthly commitments.
The rise of buy-now-pay-later (BNPL) schemes may have further exacerbated the problem by providing unregulated, easy access to credit. Analysts argue that BNPL systems psychologically “nudge” consumers into spending more, as they can break payments into smaller, often interest-free, instalments.
A 2023 study by the Malaysian Insolvency Department found that 50 per cent of bankruptcies among civil servants were due to personal loans — a trend that also extends to young private-sector workers.
There have been calls to tighten borrowing limits for civil servants. Currently, they can allocate up to 60 per cent of their monthly salary to loan repayments — a threshold critics argue is too high. This limit is set by law under Rule 13 of the Public Officer (Conduct and Discipline) Regulations 1993, which mandates that a civil servant’s total debt commitment must not exceed 60 per cent of their monthly salary, ensuring they retain at least 40 per cent of their income as take-home pay.
Unlike private-sector employees, civil servants can access a streamlined
debt management service through the Malaysian National Cooperative Movement
(Angkasa). This system automatically deducts a fixed portion of their salary to
repay lenders. However, critics argue that this may encourage a mindset where
civil servants believe Angkasa will help manage their debts, regardless of the
amount borrowed.
Despite warnings and the threat of stern action, including potential dismissal, Malaysian Insolvency Department (MDI) Director-General Datuk M. Bakri Abd Majid revealed in January that some low-ranking civil servants had been allowed to take on debts of up to RM1 million. The agency has proposed lowering the debt threshold to 45 per cent of net salary, meaning a civil servant’s total monthly debt repayment commitment cannot exceed 55 per cent of their income.
There are also concerns that stricter borrowing limits could push civil
servants toward unlicensed moneylenders. The Congress of Unions of Employees in
the Public and Civil Services (Cuepacs) warned that excessive debt could make
government employees more vulnerable to corruption.
In addition, a 2016 survey by Cuepacs revealed that 170,000 of Malaysia’s 1.6 million government employees — approximately 11 per cent — had been involved in loan scams, resulting in total losses of RM340 million.
The Madani Government must explain why behaviour patterns have to change. Every two weeks remind then to restrain from wanton purchases. Domestic consumption may decline, but personal disposable income will be better. Lifestyle change is difficult especially with Hari Raya in the air, but you don’t have to change curtains, furniture, appliances and cars every year!
Reference:
How much debt can civil servants take? Rising bankruptcy cases prompt
reform proposals, Syed Jaymal Zahiid, Malay Mail, 26 Mar 2025
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