Tuesday, May 24

RAM: New Sabah regime to maintain supportive stance at state, federal levels


KUCHING: RAM Ratings sees common goals and policy alignments between Sabah’s new coalition state government and the Federal Government.

Given the state’s polarised and fragmented political landscape, no single party in Sabah had been eligible to form the state government following last month’s general election.

However, a new state government was formalised after the defection of six assemblymen from other parties to the Warisan-Pakatan alliance. A special state assembly sitting was held to resolve a constitutional crisis over the rightful chief minister.

“While it is too early to determine the political dynamics of the ruling coalition in Sabah, the transition to the new state government has taken place with institutional settings intact,” said Esther Lai, RAM’s Head of Sovereign Ratings.

The newly minted cabinet in Sabah has three additional ministries – the Health and People’s Wellbeing, Education and Innovation, and Laws and Native Affairs ministries – whose aim is not to take over the roles and responsibilities of the respective ministries at the federal level but to improve operating efficiency at the state level.

The state government is also looking into streamlining its agencies to better focus on their core businesses, avoid duplication of functions, and improve governance as well as checks and balances.

“We expect the state government’s supportive stance towards line agencies to remain status quo, especially in the spirit of existing letters of support, even though these are not tantamount to guarantees,” Lai added.

In fulfilment of its election promises, the state government is pushing for greater autonomy, especially in respect of its rights under the Malaysia Agreement 1963.

Pending any review in this regard, Sabah continues to receive current federal government grants and allocations. Sabah, for instance, is claiming 20 per cent in royalties on oil produced in the state.

“As negotiations will be lengthy, we have not factored any potential extra revenue into the state’s financials. Sabah’s revenue collection is superior to that of all other states in Peninsula Malaysia, amounting to RM4.2 billion in 2017,” it said.

“Should the 20 per cent royalty claim materialise in the future, we expect a RM3 to RM4 billion boost to Sabah’s annual revenue stream, which could significantly fund development projects in the state.”

As with the Federal Government, large projects within the state are being currently reviewed including the remaining 23 packages under the Pan Borneo Highway project that have yet to be awarded, and the Tanjung Aru Eco Development project.

Additionally, the new state government has moved to ban log exports, with the aim of invigorating downstream activities in the timber industry along with creating employment opportunities.

Sabah’s RM1 billion Bonds (2014/2019) are currently rated AAA/Stable on RAM’s national scale.

“The rating is premised on our expectation that the relationship between the state and federal governments will stay solid. Any material erosion of federal government support for Sabah will precipitate negative rating action,” RAM added.