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THE dispute concerning Sabah’s 40% entitlement under Article 112D of the Federal Constitution has now entered a fundamentally different stage. The issue is no longer whether the constitutional obligation exists, but how it should be implemented, calculated, and ultimately honoured.

While the Federal Government may continue exercising its legal rights through appeals and procedural processes, those proceedings do not erase the underlying constitutional obligation itself. 

The practical question now confronting both Sabah and Putrajaya is whether a sustainable and enforceable settlement framework can be developed that preserves constitutional principle while avoiding fiscal and political destabilisation.

The issue is not whether Sabah seeks special treatment. The issue is whether constitutional guarantees forming part of Malaysia’s founding arrangement are to be treated as legally meaningful obligations or merely political aspirations subject to convenience. 

A federation built upon constitutional assurances cannot remain credible if those assurances become negotiable only when compliance becomes financially or politically difficult. 

At the same time, constitutional fidelity must also coexist with fiscal realism and national stability. Any durable solution must therefore balance multiple considerations simultaneously. 

It must honour Sabah’s constitutional rights while also protecting federal fiscal stability, avoiding sudden budgetary disruption, preserving investor confidence, and maintaining broader national cohesion.

The objective should not be confrontation for its own sake, but the construction of a credible constitutional settlement framework capable of strengthening both Sabah and the Federation as a whole.

Importantly, the issue should not be viewed simplistically as Sabah “taking away” from the Federation. 

Properly structured and responsibly utilised, the 40% entitlement has the potential to generate substantial multiplier effects within Sabah’s economy through infrastructure expansion, industrial growth, improved connectivity, stronger utilities, higher investment confidence, and increased private sector activity. 

A stronger Sabah economy would inevitably generate broader national economic benefits, including increased trade, higher consumption, greater employment creation, expanded corporate activity, and ultimately higher federal tax revenues over time. 

In that sense, the constitutional settlement should not be viewed merely as a fiscal transfer, but as a long-term national investment capable of strengthening Malaysia’s overall economic base.

A rigid “all or nothing” approach is unlikely to produce durable resolution. Equally, endless negotiations without implementation risk reducing constitutional safeguards into little more than political rhetoric. 

The more sensible and mature approach is therefore to distinguish between the historical arrears accumulated over decades and the ongoing constitutional obligations moving forward. 

These two categories involve fundamentally different legal, financial, and political considerations and should not be treated identically.

The most workable pathway may therefore lie in a structured two-phase constitutional and fiscal resolution framework.

Stage One — Historical Arrears (“Lost Years”)

This stage concerns the historical constitutional liability arising from the disputed period between 1974 and 2021. Possible mechanisms for resolving or progressively discharging those historical arrears may include:

A Constitutional Debt and Federal Service Credit Framework; 

Federal assumption, restructuring, or write-off of Sabah-linked liabilities and debts; 

Federal sovereign guarantees and federal servicing of financing costs for Sabah’s strategic development financing. 

Stage Two — Current and Future Constitutional Entitlements

This stage concerns Sabah’s ongoing constitutional entitlements moving forward. Unlike the historical arrears, future entitlements should ideally operate through transparent and institutionalised constitutional payment mechanisms supported by proper auditing, annual review processes, and reduced political discretion.

Phase One — Historical Arrears (“Lost Years”)

The Nature of the Historical Claim

The first phase concerns the disputed historical period from 1974 to 2021. This is the most politically sensitive and fiscally difficult aspect of the dispute because it potentially involves decades of accumulated unpaid entitlements, disputed federal revenue calculations, differing accounting methodologies, inflationary implications, and substantial retrospective federal exposure.

It is also the component most likely to remain subject to continued litigation, appeals, constitutional interpretation disputes, and negotiations. 

For that reason, insisting upon immediate full lump-sum payment may ultimately prove politically unrealistic and economically destabilising, regardless of the strength of Sabah’s constitutional position.

However, practical difficulties do not extinguish constitutional obligations. The challenge therefore becomes designing mechanisms through which the historical liability may be progressively and credibly discharged while preserving the integrity of Sabah’s constitutional rights.

Solution 1 — The Constitutional Debt and Federal Service Credit Framework

The Structure of the Proposal

One possible mechanism for resolving the historical arrears is a structured Constitutional Debt and Federal Service Credit Framework.

Under this model, the historical constitutional liability owed to Sabah, once properly ascertained or agreed, would first be formally recognised as a sovereign constitutional liability owed by the Federation. 

Parliament may then authorise a structured repayment mechanism under which 50% of the acknowledged liability is discharged through direct cash payments to Sabah, while the remaining 50% is satisfied through specifically identified and transparently valued federal service credits.

Under such a framework, the historical liability and the corresponding federal service credit obligations would be formally recognised and authorised through Parliament as part of an approved sovereign settlement structure. 

Accordingly, the federal service credit component would not merely constitute a political promise or discretionary arrangement, but an acknowledged federal liability forming part of the broader constitutional debt owed to Sabah and intended to be honoured progressively in full.

Importantly, the federal service credit component would not diminish or extinguish the underlying constitutional obligation itself. 

Rather, the credited expenditures would form part of an approved sovereign repayment structure through which the Federation progressively honours the historical constitutional liability owed to Sabah.

Crucially, such federal service credits must remain separate from and additional to the Federal Government’s ordinary constitutional, statutory, and developmental obligations within Sabah. 

Ordinary federal operational expenditure, routine development spending, or projects that the Federation is already independently obliged to undertake should not automatically qualify as discharge of the constitutional liability owed under Article 112D.

Only specifically negotiated, transparently valued, and expressly approved expenditures falling within the agreed settlement framework should qualify as federal service credits capable of offsetting part of the historical liability.

Such credits may include strategic infrastructure projects, major flood mitigation systems, power grid modernisation, water infrastructure upgrades, renewable energy investment, transport connectivity projects, healthcare expansion, digital infrastructure, or other nation-building expenditures producing long-term structural benefits for Sabah.

In practical terms, this framework would allow part of the constitutional debt owed to Sabah to be converted into long-term developmental investment while preserving full recognition of the underlying liability itself.

Why This Is a Sensible Compromise

The strength of this model lies in its political realism. The Federal Government is likely to resist immediate full cash settlement of decades of arrears due to the scale of potential exposure and the broader implications for federal finances. 

A structured compromise allows Putrajaya to comply with constitutional obligations without absorbing a sudden and politically difficult fiscal shock.

At the same time, Sabah would obtain tangible and accelerated development outcomes rather than remaining trapped in endless negotiations. 

Infrastructure and strategic expenditures of this nature would have immediate economic and social impact within the state while simultaneously addressing long-standing structural deficiencies that continue to impede Sabah’s growth.

In effect, part of the constitutional debt would be converted into direct development acceleration.

This approach also enables both parties to present the arrangement constructively. Sabah would secure recognition and implementation of its constitutional rights, while the Federal Government could frame the settlement as a nation-building and development-oriented solution rather than simply a retrospective compensatory payout.

Most importantly, the framework preserves the principle that the historical liability remains a fully acknowledged constitutional obligation owed by the Federation. The federal service credit mechanism merely provides a structured and Parliament-approved means through which part of that liability may be progressively discharged.

Any such framework would, however, require strict safeguards, transparent valuation methodologies, parliamentary oversight, and clear separation between ordinary federal expenditure and approved federal service credits recognised under the constitutional settlement framework. 

Without such safeguards, disputes may simply re-emerge under a different accounting structure.

Solution 2 — Federal Assumption or Write-Off of Sabah-Linked Debts

The Proposed Mechanism

Another possible mechanism involves the Federal Government assuming, restructuring, or writing off liabilities borne by the Sabah State Government, Sabah-linked entities, or arising from federal financing arrangements connected to Sabah’s infrastructure and development.

This may include federal loans, federally backed liabilities, or debts owed by the Sabah State Government, Sabah-linked agencies, utilities, or government-linked companies to federal entities or government-linked companies such as Tenaga Nasional Berhad.

The value of such debt assumption, restructuring, or write-offs could then be recognised as partial discharge of Sabah’s historical constitutional liability.

Why This Proposal Has Merit

Removing or restructuring legacy liabilities would immediately strengthen Sabah’s fiscal position by freeing up resources currently consumed by debt servicing. 

It would also improve the financial standing of Sabah-linked infrastructure entities, making them more stable, investable, and capable of raising financing for future development.

At the same time, the Federal Government would avoid large immediate cash outflows because debt restructuring is often fiscally easier to manage than direct compensation payments.

The Broader Economic Impact

The economic effects of such a solution would extend far beyond accounting adjustments. 

Financially stronger infrastructure entities, healthier utilities, and improved financing capacity would contribute directly to Sabah’s long-term economic competitiveness, investor confidence, and industrial development.

A financially stronger SESB, for example, would be better positioned to modernise Sabah’s power infrastructure, improve grid stability, expand renewable energy integration, and support industrial growth within the State.

In practical terms, this means the constitutional settlement would not merely resolve historical liabilities. It would also directly contribute to Sabah’s long-term economic transformation and development capacity.

Accordingly, this proposal does not merely reduce liabilities. It creates long-term economic multiplier effects that ultimately benefit both Sabah and the Federation as a whole.

Solution 3 — Federal Sovereign Guarantees for Sabah Financing

The Structure of the Proposal

A further compromise mechanism may involve federal sovereign guarantees for financing raised by the Sabah Government or Sabah-linked agencies, subject to the necessary constitutional, statutory, and public finance approvals.

Under this structure, Sabah could independently raise substantial long-term financing for strategic infrastructure and development projects while the Federal Government provides sovereign backing that allows the borrowing to occur at significantly lower interest rates.

Importantly, the Federal Government may also assume responsibility for servicing or bearing the interest component arising from such financing arrangements, with those interest payments treated as partial discharge or offset against the historical constitutional liability owed to Sabah.

Projects financed through this mechanism may include renewable energy infrastructure, ports, industrial parks, transport systems, water infrastructure, digital connectivity projects, and other major strategic investments necessary for Sabah’s long-term economic transformation.

The value of the federal sovereign guarantee, together with the federal servicing of interest obligations, could therefore form part of an approved framework through which portions of the historical liability are progressively honoured over time.

Why Sovereign Guarantees Are Attractive

This may be one of the most economically sophisticated compromise mechanisms available.

The value of federal sovereign guarantees lies in their ability to dramatically reduce financing costs over long periods. 

Even relatively small reductions in interest rates can translate into billions in savings over the lifespan of major infrastructure financing arrangements.

More importantly, the constitutional entitlement would effectively be transformed into productive long-term assets rather than purely consumptive expenditure. 

Sabah would gain access to substantial development capital immediately, while the Federal Government would avoid the need for massive upfront payments.

This structure may also provide substantial fiscal flexibility to the Federation itself. 

Rather than requiring immediate large-scale cash payments, the constitutional liability may instead be progressively honoured through long-term servicing of financing costs associated with Sabah’s strategic development.

In effect, the Federation would be converting part of the historical constitutional debt into long-term nation-building investment while simultaneously enabling Sabah to accelerate infrastructure development immediately.

Why This Is Politically Easier for Putrajaya

Politically, sovereign guarantees are often easier for central governments to manage because the fiscal exposure is contingent rather than immediate. In many cases, the guarantees may never crystallise into direct federal payments if the projects are properly managed and commercially viable.

This allows Putrajaya to comply with constitutional obligations while reducing immediate pressure on annual federal budgets.

At the same time, Sabah gains accelerated economic development, infrastructure expansion, and stronger long-term fiscal capacity.

In effect, this transforms the constitutional settlement from a purely retrospective compensation exercise into a forward-looking national development strategy.

Phase Two — Current and Future Entitlements

Why Future Years Must Be Treated Differently

The second phase concerns Sabah’s current and future entitlements from 2022 onwards. This component should be treated very differently from the historical arrears.

Unlike the historical component, the future obligations do not involve decades of accumulated liabilities or retrospective fiscal exposure. 

They concern ongoing constitutional responsibilities that should function as part of the Federation’s normal fiscal architecture.

Once the constitutional formula is properly determined, future payments should therefore operate through transparent and institutionalised mechanisms rather than continuing as recurring political negotiations.

The Importance of Direct Constitutional Payments

Future constitutional entitlements should ideally be governed through transparent annual calculations, institutional oversight mechanisms, independent auditing, and automatic transfer structures that reduce political discretion.

This is important because Article 112D was never intended to operate as a matter of occasional political generosity.

It exists as part of the constitutional fiscal structure governing the Federation itself.

Direct constitutional transfers therefore better preserve both the spirit and integrity of the constitutional safeguard while also strengthening Sabah’s long-term fiscal autonomy and planning capacity.

The Test of a Federation

The greatest danger now is no longer legal uncertainty. The greater danger is endless negotiation without implementation.

That is why a structured two-phase resolution framework may provide the most credible pathway forward. 

It allows Sabah to remain firm on constitutional principle while recognising the practical realities of fiscal management and national politics.

A mature federation does not preserve unity by indefinitely postponing constitutional obligations. 

It preserves unity by creating workable, sustainable, and enforceable mechanisms through which constitutional promises are ultimately honoured.

A federation ultimately survives not through slogans or symbolism, but through the willingness of its institutions to honour the constitutional promises upon which it was founded.

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