They said the move dispelled claims that Putrajaya was just paying lip service to the agreement signed in 1963 among the UK, Malaya, Sabah and Sarawak, leading to the formation of Malaysia.
Under the 2025 Budget, Sabah and Sarawak will receive RM6.7 billion and RM5.9 billion in development funds, up from RM6.6 billion and RM5.8 billion respectively in Budget 2024.
In addition, the interim special grants for Sabah and Sarawak will be doubled to RM600 million each in 2025 from RM300 million previously.
This was the second consecutive year that the unity government under Prime Minister Anwar Ibrahim had raised allocations for both states. Under the 2024 budget, the special grant jumped to RM300 million from just RM16 million for Sarawak and RM125.6 million for Sabah previously.
Academy of Sciences Malaysia fellow Madeline Berma said the doubling of the special grants to RM600 million in 2025 is commendable and shows that the unity government is committed to MA63.
“This increase reflects an improvement in the system of federal-state transfer (of funds). The prime minister had promised to make periodic reviews to the grants and allocations to both states,” the economist told FMT.
She said both states are economically lagging behind Peninsular Malaysia, and as such they need assistance for a certain period under a “system of fiscal equalisation”.
She said Sabah and Sarawak contributed 9.1% and 5.5% respectively to Malaysia’s gross domestic product (GDP) in 2023.
Yet, both states have a very high incidence of poverty with Sabah topping the list at 19.7% and Sarawak the third highest at 10.8% in 2022, according to the Department of Statistics Malaysia.
Madeline said the increase in special grants and allocations need to be reviewed periodically.
“There is a need to allocate a larger budget to Sabah and Sarawak to narrow the disparity between them and Peninsular Malaysia, and compensate for unfair federal budget allocations to both states in the past.
“Not only should there be an increase, there is also a need for Sabah and Sarawak to have greater fiscal autonomy in terms of revenue generation and determining expenditure priorities,” she argued.
They need greater autonomy in decision-making and mobilising state resources rather than waiting for solutions or provision of public goods and services from the federal government, she added.
Attaining financial autonomy
On the issue of financial autonomy, University of Tasmania professor of Asian studies James Chin points out the special grant is not money given directly to Sabah and Sarawak but rather a credit facility provided by the federal government.
“For example, if the grant is RM600 million, the state governments can each spend up to that amount, and they will get a reimbursement,” he told FMT.
Currently, if Sabah and Sarawak want to spend on major projects they need permission from Putrajaya, he said.
“What they want is a direct injection into the state budget. The view from Kuching and Kota Kinabalu is that if the money is given as a supplement to the state budget, it will make a huge difference.”
Chin noted the special grant is a temporary allocation until Sabah and Sarawak, and the federal government agree on a permanent formula. Sabah’s stand is that under MA63, it is entitled to receive 40% of the state’s revenue as a special grant.
“That formula is very difficult to achieve. Both sides have made their proposals but my understanding is that the gap is still quite wide,” he said.
On bridging the development gap between the two states and Peninsular Malaysia, Chin said the funds needed for this will have to come primarily from the federal government.
“The alternative is to return more of the Petronas oil and gas money back to Sabah and Sarawak,” he said.
He was referring to on-going negotiations between Sarawak-owned Petroleum Sarawak Bhd (Petros) and Petroliam Nasional Bhd (Petronas) for the former to be appointed the sole gas aggregator for the state.
“If the deal is successful (for Petros), Sabah will get it eventually as well. That will bring in billions of ringgit to the state coffers in Kota Kinabalu and Kuching,” Chin added.
Though Petronas has a monopoly over the extraction of oil and gas, Sarawak has sought greater control over the state’s natural resources.
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