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HOW much will Sabah receive from the federal government to satisfy the MA63 requirement that 40% of revenue derived from the state be returned?

This was one of the key debate points that swirled around the recent Sabah state election. No detailed public records are available to date, and even pronouncements on this issue did not give an authoritative number. 

The previous calculation mechanism touted by the federal authorities was judged as illegal.

We attempt to put a number on this issue, using a mechanism for calculation as a guide.

There are a rather large number of obstacles that stand in the way. 

For example, although we used Constant 2015 Prices for our GDP (gross domestic product) numbers, there are substantial differences between Department of Statistics Malaysia (DoSM) and the International Monetary Fund’s (IMF) numbers in their twice-yearly World Economic Outlook Database (The Edge Malaysia, March 31, 2025 issue). 

Further, while DoSM has GDP numbers from 1963 for this purpose, IMF’s only starts in 1980. The differences are caught in Table 1:

There is a general rule in finance that says the higher a discount rate is, the lower will be the resultant value. 

Could this have happened when both the DoSM and IMF used different inflation rates to adjust current GDP values to a constant one? 

Note that both entities used 2015 as the constant year price. Nonetheless, a reconciliation must be done, as the difference is a factor of three, too large to ignore.

Further, only DoSM has state-by-state GDP numbers, but Sabah’s runs from 2015 to 2023, further complicating the effort. Still, one must push ahead, as nothing great is ever achieved by giving up.

Given the difficulties above, we decided to use five-year estimates of Sabah’s GDP as a percentage of the country’s (see Table 2) and generate the average. 

On top of that, we estimated the tax burden (the amount of tax collected per year) as a percentage of GDP (see Table 3). Tax burden in this case is usually headlined as “Federal Government Revenue” in economic reports.

It must be noted that federal government revenue has many components to it, for example, interest and returns from investments, income from exploration of oil and gas, rentals, and so on. 

Since there are no public detailed and segregated records by state of these, we add them into our calculations on a lump-sum basis.

The averages of the above are then applied to Malaysia’s GDP since 1963 to arrive at the outcome.

Thus, by utilising the factors iterated and estimated above, we concluded that the ballpark figure for Sabah’s 40% since 1963 is worth some RM136.3 billion.

If one applies an interest charge of 5% pa like the courts are likely to do for payment arrears, the total goes up to RM143.1 billion.

RM136.3 billion is some 21 times Sabah’s 2026 annual budget and around a third of the federal government’s annual operating expenditure budget.

This is a substantial sum by any account. Thus, negotiations about how the repayment may take place will be crucial, as will the final amount to be paid.

There is also a cautionary tale in this. Large windfalls tend to be a destructive burden to countries receiving them. 

The story of the Spanish Empire and its gold takings from South America abound, as well as “Dutch disease” where oil found in the Netherlands caused the Netherlands to almost cease other economic activity, and even the Norwegians, who found North Sea oil, and used the proceeds therefrom in their budgets, causing massive boom and bust cycles, until they learned to tame it.

In the next article, we shall forward recommendations for the utilisation of these proceeds for the perpetual betterment of the economy of Sabah.

Huzaime Hamid is chairman and CEO of Ingenium Advisors, Malaysia’s financial macroeconomics advisory. This appeared in the Edge.

The views expressed here are the views of the writer and do not necessarily reflect those of the Daily Express. If you have something to share, write to us at: Forum@dailyexpress.com.my