How much debt can civil servants take? Rising bankruptcy cases prompt reform proposals
A group of civil servants reciting their vows during an assembly in Putrajaya. — Picture by Hari Anggara
Tuesday, 25 Mar 2025 7:00 AM MYT
KUALA LUMPUR, March 25 — A shocking 14 per cent of civil servants have been declared bankrupt last year, according to data from the Malaysian Insolvency Department.
This alarming statistic 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.
As a result, this trend has sparked intense debate over its causes and potential solutions.
Why are more civil servants taking on debt?
Shamsul attributes the rise in personal debt among civil servants largely to 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.
He suggested that 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.
As a result, many civil servants accumulate credit card debt and subsequently take out large personal loans to repay their initial obligations, often in an attempt to lower their monthly commitments. Bank agents interviewed by *Malay Mail* noted that borrowers typically extend loan tenures over several years, ultimately paying more in interest.
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.
Civil servants spotted walking through a Putrajaya government complex during the day. — Picture By Raymond Manuel
Regulations on borrowing limits for civil servants
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.
Government response to the crisis
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.
Reactions to this proposal have been mixed. Public Service Director-General Tan Sri Wan Ahmad Dahlan Abdul Aziz has expressed cautious support, urging a careful approach to implementation.
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.
Civil servants spotted walking along the streets of Putrajaya. — Picture By Raymond Manuel
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.
As the debate continues, policymakers must strike a balance between financial discipline and ensuring that civil servants are not driven to unregulated or illegal lending sources.
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