MA63 and the 2026 Budget: Big Promises, Bigger Tests Ahead

The 2026 Budget signals a stronger commitment by the Federal Government to honour the spirit of the Malaysia Agreement 1963 (MA63), with allocations that stand out both in scale and symbolism. For the first time in recent years, Sabah and Sarawak are placed firmly at the centre of national development priorities, backed by a surge in infrastructure and connectivity funding. Yet as with all ambitious plans, the real challenge lies not in announcement but execution. Sabah’s development allocation has risen to RM6.9 billion, from RM4.4 billion in 2022, while Sarawak’s jumps to RM6 billion from RM2.9 billion. The Special Grant for both states doubles to RM600 million, a significant fiscal gesture toward equitable distribution. Beyond these numbers are tangible projects: the Southern Link Transmission Line (RM765 million) to strengthen Sabah’s power grid, RM1 billion in water infrastructure, and the continuation of the Pan Borneo Highway and Sarawak–Sabah Link Road. These are high-visibility investments aimed at narrowing development gaps that have persisted for decades. If implemented effectively, the benefits could be transformative. The RM2 billion MADANI Submarine Cable System (SALAM), stretching 3,190 kilometres beneath the sea from Johor to Tawau, promises to bridge East and West Malaysia’s digital divide. Improved connectivity can lower the cost of doing business, attract investment in digital industries, and enhance access to education and healthcare. Likewise, better road and power networks can anchor long-term industrial development, support tourism corridors, and make rural communities less isolated. In macroeconomic terms, these investments build the foundation for Sabah and Sarawak to transition from resource-reliant economies to diversified growth hubs. However, the economic optimism should be tempered by Malaysia’s long-standing implementation weaknesses. Sabah’s Pan Borneo Highway has seen repeated delays due to land acquisition disputes, bureaucratic overlaps, and tendering issues. Infrastructure spending, while headline-grabbing, often falls short of schedule or fails to deliver measurable productivity gains. Without better project governance, this new wave of allocations risks repeating old patterns — large budgets with limited on-the-ground change. Transparency in procurement and open data on project progress should be made standard, not optional. Another area of concern is maintenance and sustainability. Capital expenditure builds assets, but operating expenditure keeps them functional. Once water and power projects are completed, who ensures consistent funding for upkeep? With electricity regulation now fully devolved to the state, Sabah must strengthen its fiscal and technical capacity to manage its grid. Without this, the risk is that federal generosity today could turn into future financial burdens. Finally, policymakers must ensure local value capture. Mega-projects often benefit large contractors based outside the state, with limited trickle-down effects. To truly honour MA63’s intent of equitable development, the government must embed local participation — through SME subcontracting, local hiring, and skills transfer — into every major project. Otherwise, the developmental gap will persist even as the spending figures grow. In essence, the 2026 Budget gets the macroeconomics right: prioritising lagging regions, fixing infrastructure bottlenecks, and investing in digital connectivity. But the microeconomics of execution — project delivery, governance, and local empowerment — will determine whether Sabah and Sarawak truly catch up with the rest of the nation. MA63 was about partnership and parity; this Budget gives it fiscal form. Turning that promise into reality will require political discipline, administrative reform, and relentless follow-through. If Malaysia can finally close that implementation gap, Budget 2026 may well be remembered not just as a financial statement, but as the year MA63 moved from rhetoric to results.

Disclaimer: This analysis is made using ChatGPT