Published on 28 September 2012
RAM Ratings has reaffirmed the AAA rating of the State
Government of Sabah’s (“Sabah” or “the State”) RM544 million Bonds (2009/2014);
the long-term rating has a stable outlook. The rating reflects Sabah’s rich
natural wealth that remains key to spurring its economic growth, the State
Government’s strong revenue-adjustment capacity, its healthy fiscal position,
and its supportive relationship with the Federal Government. These strengths
balance the challenge of unlocking Sabah’s long-term development potential.
The Bonds had been raised and issued with the approval of
the Federal Government, in accordance with the requirements of the Constitution
of Malaysia. Although we do not consider this approval as being tantamount to a
direct guarantee by the Federal Government, we believe that support will be
extended to the State Government, if required.
Sabah is endowed with a wealth of minerals, agricultural
land, biodiversity and cultural heritage – which form the backbone of its
economy. The primary sector (agriculture and mining) is the mainstay of the
State’s economic output – contributing approximately 40% of its gross domestic
product in 2010. Notably, Sabah has Malaysia’s largest area in terms of planted
oil palms, accounting for 1.4 million hectares or 29% of the country’s total
planted area. Furthermore, the State is an important cog of the Malaysian
economy by virtue of its crude-oil production. Demand for both these primary
commodities is seen to be relatively sustainable, thus providing a certain degree
of resilience to Sabah’s economy. However, the State’s significant exposure to
these commodities makes it somewhat vulnerable to volatile price movements.
Aside from the primary sector, the services sector – which represents half of
the State’s economy – is an important growth driver. The services sector, while
largely tourism-driven, also caters to the increasing size and income of the
State’s population.
Sabah has a long track record of budgetary discipline, as
evidenced by several years of fiscal surpluses, relatively large cash reserves
and its consistent ability to make interest payments as they fall due.
Furthermore, the Sabah Government enjoys a stronger fiscal-adjustment capacity
than its counterparts in Peninsular Malaysia. Under the Constitution, the State
is accorded additional revenue sources, including import and excise duties on
petroleum products, export duties on timber-related products, fees and dues
from ports and harbours, and State Sales Tax. Sabah is also entitled to yearly
cash payments from national oil giant Petroliam Nasional Berhad, amounting to
5% of the value of petroleum derived from Sabah.
Meanwhile, the State Government continues to enjoy a
supportive relationship with the ruling Barisan Nasional coalition. From a
political viewpoint, both the East Malaysian states of Sabah and Sarawak are
strategically important to any party attempting to form the Federal Government,
as they account for 25% of the seats in the Dewan Rakyat (or House of
Representatives).
Media contact
Jason Fong
(603) 7628 1103
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