Macro Update: The State of Sabah - Full Report

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Report Date Jul 2020 Product  
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Sabah, the second-largest state by land area and the third most populous, accounts for 6.2% of national GDP. Blessed with an abundance of resources, the economy has been mainly driven by the agriculture, oil and gas (O&G) and tourism sectors. Nevertheless, Sabah has in recent years pledged to focus on economic diversification strategies to ensure more sustainable and equitable development. The strategies include the creation of high value-added and knowledge-intensive manufacturing.

Sabah is one of the very few states that is fiscally sustainable. Over the years, it has consistently generated surpluses even during major crises. Thanks to earnings from the O&G sector, Sabah’s revenue position is also impressive. Its median revenue as a percentage of GDP over the 2014-2018 period came in at 4.3%, far exceeding that of all states (1.4%).

A reflection of its sturdy liquidity position, Sabah has the second-largest consolidated fund among all states, just behind Sarawak. The state government had fully redeemed RM1.0 billion worth of bonds upon maturity in December 2019, indicating the government’s commitment and capability in meeting its debt obligations in a timely manner without the need for refinancing.

State-federal relations remain promising. The federal government has shown its willingness to meet the needs of Sabah by setting up a cabinet portfolio for Sabah and Sarawak affairs. The portfolio is being led by an experienced minister from Sabah who has been pushing for state rights enshrined in the Malaysia Agreement 1963 (MA63).