Sabah and Sarawak interim special grants jump to RM1.5 billion each as 2027 Budget debate opens

AI Summary

Sabah and Sarawak each receive an interim special grant of RM1.5 billion, up from RM26.7 million for Sabah in 2021 and RM16 million for Sarawak in 2022, Finance Minister II Amir Hamzah Azizan told the Dewan Rakyat on 29 October 2026. Total federal allocations reach RM18.7 billion for Sabah and RM16.2 billion for Sarawak in the 2027 Budget. The permanent formula under Article 112D of the Federal Constitution is still not settled, so the interim figure is what both states plan around.

What happened

Finance Minister II Amir Hamzah Azizan told the Dewan Rakyat on 29 October 2026 that the federal government has raised the interim special grants paid to Sabah and Sarawak to RM1.5 billion each. The figures come from a Bernama report carried by Malay Mail the same day.

The comparison he gave is stark. Sabah’s interim special grant stood at RM26.7 million in 2021. Sarawak’s stood at RM16 million in 2022. Both now sit at RM1.5 billion. By the minister’s own framing, that is more than 50 times the 2021 figure for Sabah and more than 90 times the 2022 figure for Sarawak.

The special grant sits inside a larger transfer. Amir Hamzah said the overall allocation for the two states is the highest of any in the federation, rising to RM18.7 billion for Sabah and RM16.2 billion for Sarawak in the 2027 Budget.

Two smaller lines in the same speech matter for rural readers. The Ecological Fiscal Transfer, a payment to states that keep forest and catchment land intact rather than logging or clearing it, rises to RM270 million in the 2027 Budget from RM150 million in 2023. The Malaysian Road Records Information System, known as MARRIS, which funds road maintenance in the states, rises to RM5.6 billion in 2026 from RM5.2 billion in 2023.

The whole envelope is growing. Federal expenditure is projected at RM459.8 billion in 2027, up from a revised RM444.1 billion in 2026, split into RM376.8 billion of operating spending and RM83 billion of development spending.

Special grant: a payment the federal government makes to a state under Article 112D of the Federal Constitution, reviewed periodically, separate from the ordinary allocations a state receives for roads, schools and health.

Why now

The special grant is not a new idea. It is written into the constitution, and the constitution says the amount is reviewed from time to time by the federal government and the state. What has been missing for years is the settled number. Both states have been paid an interim amount while the permanent formula is worked out.

That interim arrangement is the thread. Sabah’s payment was RM26.7 million in 2021. Sarawak’s was RM16 million in 2022. The jump to RM1.5 billion each is the federal government closing a gap that had become politically impossible to defend, because the cost of delivering services in a state the size of Sabah or Sarawak does not shrink to fit a payment set decades earlier.

The timing is the budget cycle. The 2027 Budget debate opened this week, and the finance ministry used the minister’s reply to put the state numbers on the record before the committee stage. That is the moment when every allocation is open to questioning, and the two east Malaysian states carry the largest single state envelopes in the document.

The third thread is the Malaysia Agreement 1963. The special grant is one of the financial items under that agreement that Sabah and Sarawak have pressed hardest on. A payment that rises by more than 50 times in five years is a signal that the federal side has decided to move on the money before the formula is finalised.

So what

The gain is real and it is large. A state government that was budgeting around RM26.7 million from this line in 2021 is now budgeting around RM1.5 billion. That is money that can be spent on rural clinics, water pipes, small roads and the recurrent costs of running district offices, without waiting for a development project to be approved in Putrajaya.

The cost side is the federal budget. Federal expenditure rises to RM459.8 billion in 2027 from a revised RM444.1 billion in 2026. The two state envelopes of RM18.7 billion and RM16.2 billion together are a visible slice of that. Every ringgit sent to Kota Kinabalu or Kuching is a ringgit not available for a programme somewhere else, and the budget debate is where that trade-off gets argued.

The unresolved part is the formula. An interim grant is a payment made while the permanent rule is still being negotiated. It can be raised, and it has been raised sharply. It is not the same as a settled entitlement, and a state that plans a ten-year hospital programme around it is planning around a number that the next review can change.

The mechanism is a system with a delay built in. Money moves to the state this year. The clinic, the pipe and the road arrive two to four years later, because construction takes that long. The feedback — whether the money was enough — arrives after the political cycle that set it has moved on. That delay is why the formula matters more than any single year’s figure.

What it means for Malaysia

The carrier is the state civil service and the district-level contractor in Sabah and Sarawak.

A state that receives RM1.5 billion in an interim special grant hires against it. It funds the recurrent costs that the federal operating budget does not cover: the upkeep of state buildings, the running of district offices, small maintenance contracts that go to local firms. A jump of this size means more contracts available in Kota Kinabalu, Kuching, Sibu and the smaller district towns, and more room for the state to absorb federal projects that arrive without running costs attached.

The second carrier is the rural household. MARRIS at RM5.6 billion in 2026 is the road maintenance line, and in a state where a logging road is often the only road, that line is the difference between a school bus that runs and one that does not. The Ecological Fiscal Transfer at RM270 million is the payment for keeping forest standing, and it lands on state forestry and land departments that decide whether a catchment is protected.

The third carrier is the federal taxpayer. The 2027 Budget spends RM459.8 billion. The two state envelopes are the largest state lines in it. A reader in Penang or Johor who wonders where the development budget went now has a number to look at.

For the wider picture on how federal money and trade flows move through the economy, see Malaysia’s exports passing RM200 billion for the first time in September and Bank Negara holding the OPR at 2.75%. For how the country’s population is shifting underneath these allocations, see the DOSM vital statistics series.

How we calculated this

The arithmetic below uses only the figures the minister gave. It shows the scale of the interim grant increase and the share of federal expenditure the two state envelopes represent.

Sabah interim grant, 2021:        RM26.7 million
Sabah interim grant, now:         RM1,500 million
Increase:                         1,500 / 26.7 = 56.2 times

Sarawak interim grant, 2022:      RM16 million
Sarawak interim grant, now:       RM1,500 million
Increase:                         1,500 / 16 = 93.75 times

Combined state envelopes, 2027:   RM18.7 billion + RM16.2 billion = RM34.9 billion
Federal expenditure, 2027:        RM459.8 billion
Share of federal expenditure:     34.9 / 459.8 = 7.6%

Federal expenditure increase:     RM459.8 billion - RM444.1 billion = RM15.7 billion
Combined state envelopes as a
share of that increase:           34.9 / 15.7 = 222%

The last line is the one to sit with. The two state envelopes together are more than twice the year-on-year increase in total federal spending. That does not mean the states are paid out of the increase alone — the budget is a stock, not a flow — but it does mean the rise in the two envelopes is larger than the entire new money in the 2027 budget, and the rest of the budget is being rebalanced to accommodate it.

How confident

Confirmed. The figures come from Finance Minister II Amir Hamzah Azizan’s speech in the Dewan Rakyat on 29 October 2026, as reported by Bernama and carried by Malay Mail. The interim special grants of RM1.5 billion each, the total allocations of RM18.7 billion and RM16.2 billion, the Ecological Fiscal Transfer of RM270 million, MARRIS at RM5.6 billion and federal expenditure of RM459.8 billion are all stated in that report. The comparison figures of RM26.7 million in 2021 and RM16 million in 2022 are the minister’s own.

Inferred. The reading that the interim grant is a bridge to a permanent formula under Article 112D, and that the formula is still unsettled, follows from the word “interim” in the minister’s own description and from the fact that the payment is being raised rather than fixed. The arithmetic in the calculation block is mine, built from the minister’s figures. The judgement that the two state envelopes are larger than the year-on-year increase in federal spending is arithmetic, not a claim about how the budget is financed.

What would change my mind. A published formula, or a statement from the finance ministry or the Sabah and Sarawak state governments naming the settled amount and the review date, would move this from an interim story to a permanent one. A breakdown of what the RM18.7 billion and RM16.2 billion actually contain — how much is development spending, how much is operating, how much is the special grant itself — would sharpen the picture considerably. None of that is in the document I have.

For you

• A household in a rural Sabah or Sarawak district: the MARRIS line at RM5.6 billion in 2026 is the road maintenance budget, and it is the line that decides whether the road to your nearest clinic is repaired this year.
• A small contractor in Kota Kinabalu or Kuching: a state government working with an interim grant of RM1.5 billion has more room for small maintenance and works contracts than one working with RM26.7 million, and those contracts are usually advertised at district level.
• A student from Sabah or Sarawak studying in the peninsula: the state envelope is what funds state scholarships and state-run hostels, and a larger envelope is the pool those programmes draw from.
• A federal taxpayer in any state: the 2027 Budget spends RM459.8 billion, and the two east Malaysian envelopes are the largest state lines in it. That is the trade-off the budget debate is arguing over this week.

The data point

RM34.9 billion — the combined federal allocation to Sabah (RM18.7 billion) and Sarawak (RM16.2 billion) in the 2027 Budget, which is 7.6% of total projected federal expenditure of RM459.8 billion.

FAQ

Is the RM1.5 billion a permanent amount? No. The minister described it as an interim special grant, which is a payment made while the permanent formula under Article 112D of the Federal Constitution is still being worked out. The figure has been raised sharply — from RM26.7 million for Sabah in 2021 and RM16 million for Sarawak in 2022 — but an interim payment is not the same as a settled entitlement. A state planning a long infrastructure programme around it is planning around a number that the next review can change. The document I have does not name the permanent figure or the date it will be set.

How does this reach an ordinary household in Sabah or Sarawak? Through the state’s recurrent spending and through road maintenance. The special grant is money the state government uses for the running costs the federal operating budget does not cover: district offices, state buildings, small maintenance contracts. Separately, MARRIS at RM5.6 billion in 2026 funds road maintenance across the states, and in a state where a single road is often the only link to a clinic or a school, that line is the one a household feels first. The Ecological Fiscal Transfer at RM270 million pays states for keeping forest and catchment land intact.

Does a larger allocation to Sabah and Sarawak mean less money for other states? The 2027 Budget projects federal expenditure of RM459.8 billion, up from a revised RM444.1 billion in 2026. The two east Malaysian envelopes together come to RM34.9 billion, which is 7.6% of the total and more than twice the year-on-year increase in federal spending. That arithmetic means the rest of the budget is being rebalanced to accommodate the rise, not that other states have had their allocations cut line by line. The document I have does not break down the other states’ allocations, so the size of any offset elsewhere is not something I can state.

The point

The money is real and it is large: RM1.5 billion each in interim special grants, RM18.7 billion and RM16.2 billion in total allocations, and a combined envelope that is 7.6% of federal spending. What is not yet real is the formula. Until the permanent amount under Article 112D is named, both states are planning around a number that has been raised sharply and can be raised or reset again. The reader’s job this week is to watch the committee stage of the budget debate for the breakdown of what those two envelopes contain, because that breakdown is where the interim figure becomes a service a household can actually use.