KUALA LUMPUR (March 14): The Employees Provident Fund (EPF) will have to dispose of more overseas investments, as well as halt domestic investments in the short to medium term if another RM10,000 withdrawal is to be allowed, which will have serious implications in the long-run, said Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.

He said a withdrawal of up to RM10,000 for 6.3 million eligible members will add up to a total of RM63 billion, and will require the EPF to rebalance its portfolio to accommodate the withdrawal, which would likely drive the total impact beyond RM63 billion.

He was responding to calls from lawmakers to allow EPF members to make further withdrawals of up to RM10,000 to help tide them over in the current challenging environment. EPF members have previously been given access to up to RM71,000 of their pension funds via three special withdrawal programmes — namely i-Lestari, i-Sinar and i-Citra —which came up to RM101 billion.

“To provide the total RM63 billion, the EPF will have to sell more of its overseas investment assets amid the uncertain market conditions, especially with the recent Russia-Ukraine crisis, and stop its domestic investments in the short to medium term (three to six months),” he said when winding up the debate on the motion of thanks for the Royal Address for the Ministry of Finance in the Dewan Rakyat.

This would have adverse effects on the domestic equity and bond markets, he said, as he pointed to the 100-basis point increase in the coupon rate of Malaysian Government Securities (MGS) since the third quarter of 2020.

This has resulted in significantly higher borrowing costs for the government, Zafrul said, as well as portfolio losses for market participants.

Citing as example the total borrowings of RM83 billion for MGS in 2021, he said the government has had to pay an additional RM830 million per year.

“This money could have been used for various programmes and financial assistance for the people. The rise in the coupon rate will result in greater losses, and will exacerbate the negative sentiment towards the domestic financial markets,” said the minister.

“Furthermore, this will jeopardise the EPF’s position as the largest single holder of MGS with total holdings of RM240 billion (or nearly 27% of the total value of the MGS bond market). In terms of companies listed on the local bourse, EPF holds about 16% (or RM272 billion) out of the total RM1.7 trillion,” he said, noting the EPF holds about 21% or RM166 billion of corporate bonds.

When EPF’s position as one of the largest domestic equity and bond investors is affected, this will in turn affect EPF’s ability to generate dividends to its members, as well as in executing its role as a liquidity provider for the government bond market, he added.