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Sabah’s Budget 2020 focuses on development agenda

Published on 20 Nov 2019.

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Sabah’s development-centric Budget 2020, which targets the transformation of the economy into an industrial-based one, is viewed favourably by RAM Ratings. To spur the State’s economy, key industries, namely manufacturing, tourism and agriculture, have been identified by the state government to drive growth during the 2021-2025 period of the 12th Malaysia Plan. We believe this is a step in the right direction to diversify the State’s commodity-reliant economy and narrow the wide socio-economic gap between Sabah and other Malaysian states.

Sabah’s revenue is budgeted to come in at RM4.19 bil in 2020. With expectations of crude palm oil (CPO) output hitting at least 5 mil metric tonnes and prices averaging RM2200 per metric tonne, CPO sales tax is likely to contribute RM850 mil of tax income. That said, taking into account projected petroleum royalties of RM1.7 bil (Budget 2019: RM1.6 bil), non-tax revenue remains the largest contributor to fiscal revenue in 2020 (64.3% of total revenue). While Budget 2020 does not introduce any new revenue measure, the fishery commodities tax – postponed for 2019 – is forecast to bring in RM10 mil of tax collections in 2020. Elsewhere, the capitation grant, the allocation for items in the Concurrent List, and the tourism grant collectively sum up to RM463.2 mil in 2020.

The state government’s budgeted expenditure is anticipated to decline a marginal 0.4% to RM4.14 bil in 2020 owing to lower emoluments, the termination of outsource agreements for the operation of water treatment plants, and the maturity of Sabah’s RM1.0 billion Bonds, which will bring an end to contributions to the sinking fund. Spending in 2020 will prioritise economic development, seen in the allocation of RM896.32 mil to grow the aforesaid key industries. Policy frameworks such as the Agriculture Blueprint (2021-2030), Sabah Timber Industry Master Plan and Sabah Oil and Gas Industry Master Plan will support the State’s economic diversification goal. Additionally, the 2020 federal budgetary allocation for Sabah, amounting to RM5.1 bil, will further underpin the State’s development (National Budget 2019: RM5.0 bil). The Federal Government’s commitment to Sabah, in our view, evinces a supportive relationship.

Although Sabah’s fiscal position is projected to post a smaller surplus of RM48.55 mil in 2020, compared to 2019’s estimated surplus of RM105.32 mil, the maintenance of a surplus position reflects the State’s prudent fiscal management. Further, its sizeable fiscal reserves, estimated at RM3.77 bil as at end-2018, act as a solid buffer against near-term fiscal shortfalls. The RM1.0 billion Bonds (2014/2019), rated AAA/Stable by RAM, will mature on 9 December 2019. As stated in Budget 2020, Sabah’s healthy financials will allow the State to fully redeem the debt facility. 

 

Analytical contact
Toh Wei Liang    
(603) 3385 2620
weiliang@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



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