MARC Ratings has affirmed Sabah’s sub-sovereign credit rating at AAA with a stable outlook, based on the rating agency’s sub-sovereign rating scale. This is an unsolicited rating based on public information. The affirmation reflects Sabah’s continued fiscal strength, underpinned by substantial natural resource wealth which contributes to the state’s revenue, sizeable fiscal buffers, and strong institutional framework.
Sabah remains one of Malaysia’s most natural resource–rich states, with the agricultural and mining sectors jointly accounting for 36.5% of its gross domestic product (GDP) in 2024, the highest share among all states. It is the country’s leading producer of crude palm oil (22.1% of national output in 2024), and a significant contributor to oil and gas (O&G) production. Although palm oil–related products are the state’s dominant exports, Sabah is actively pursuing downstream O&G development to expand its currently modest manufacturing base.
Sabah’s fiscal position remains resilient, supported by solid revenue receipts from commodities. Total revenue rose to RM7.0 billion in 2023, equivalent to 6.2% of state GDP, among the highest across states, after Sarawak. A key driver has been the imposition and expansion of sales taxes on petroleum products, which, together with palm oil–related taxes, accounted for 93.1% of total tax revenue. Although tax receipts moderated to RM3.2 billion in 2023 from RM3.8 billion in 2022 due to weaker commodity prices, Sabah’s commercial arrangements and dividend flows from state-owned entities continue to lend revenue stability.
Given the significant role of the O&G and palm oil sectors in Sabah’s economy, commodity price volatility has a material impact on fiscal revenues. With energy prices expected to soften in 2025, revenue performance may face headwinds. Nonetheless, Sabah is expected to maintain a healthy fiscal balance over the medium term, supported by ongoing efforts to broaden the tax base and drive economic diversification. The Sabah Development Corridor (SDC) Blueprint 2.0 outlines targeted strategies to boost industrial growth and improve social outcomes, which could enhance long-term sustainability and inclusivity if well-executed.
Sabah’s track record of consistent fiscal surpluses has allowed it to build strong financial buffers. Its consolidated funds increased to RM6.8 billion in 2023 from RM5.4 billion a year earlier — the second largest among Malaysian states — providing coverage of more than a year’s expenditure and 2.3 times its outstanding debt.
The state also benefits from evolving institutional arrangements under the Malaysia Agreement 1963 (MA63), which have gradually enhanced its financial and administrative autonomy. Sabah retains the authority to impose new taxes and approve development projects below a certain cost threshold. While the state is in ongoing discussions with the federal government regarding potential revenue-sharing arrangements, interim payments are expected to rise to RM600 million in 2025 from RM300 million previously, further supporting Sabah’s fiscal flexibility.
The stable outlook reflects MARC Ratings’ expectations that Sabah will sustain a sound fiscal position, supported by robust liquidity buffers, continued revenue generation from natural resource wealth and steady federal support for the state’s development agenda. Nonetheless, Sabah’s credit profile remains vulnerable to global economic volatilities, which could weigh on commodity prices and temporarily affect the state’s economic momentum.