PETALING JAYA: Budget 2025, the largest at RM421bil, has been criticised for its lack of strategic foresight, particularly concerning Sabah.
According to the Institute of Strategic Analysis and Policy Research (Insap), the budget offers infrastructure benefits, but it neglects sustainable growth for Small and Medium Industries (SMEs) and fails to capitalise on regional opportunities like Indonesia's new capital, Nusantara.
The minimum wage increase may raise living costs and potentially lead to job losses in Sabah while the fragmented infrastructure investment risks Sabah's further economic lag opines Insap in a statement i released on Friday (Oct 25). Read below for the full statement:
THE tabling of Budget 2025 has generated much discussion about its impact on Malaysia’s economy, but for Sabah, the outlook remains concerning.
While the budget is the largest ever at RM421bil, the reality is that the allocation, despite its scale, lacks strategic foresight.
Although Sabah benefits from infrastructure spending, the budget offers little regarding sustainable economic growth, meaningful support for small and medium enterprises (SMEs), or incentives to stem the outflow of talent.
Compounding these issues is the failure to capitalise on regional opportunities, particularly those arising from the development of Indonesia’s new capital, Nusantara.
The federal government’s piecemeal approach to Sabah’s economic development, without a cohesive vision, risks leaving the region even further behind in a rapidly shifting regional landscape.
Minimum wage: Short-term relief, long-term risk
The increase in the minimum wage from RM1,500 to RM1,700, effective Feb 1, 2025, may seem positive for workers, but the reality is more complex.
While higher wages can boost consumer spending, they will also raise the cost of living, particularly in Sabah, which already faces high prices due to transportation and logistics challenges.
Small businesses and SMEs, operating on thin margins, may be forced to reduce hiring or lay off workers in response to the wage hike.
The Small and Medium Enterprises Association of Malaysia (Samenta) has expressed concerns about the negative impact on businesses, especially in Sabah and Sarawak.
Although a six-month deferment on the wage increases for businesses with fewer than five employees has been offered, this does not address the deeper structural challenges they face.
Furthermore, higher wages will not equate to greater disposable income if inflation rises concurrently, leaving workers struggling to keep up with rising expenses.
This wage increase could lead to job losses, prompting employers to freeze hiring or cut their workforce, exacerbating Sabah’s economic challenges.
The region's ongoing brain drain, with young workers migrating to Peninsular Malaysia for better opportunities, could worsen if employers scale back operations, undermining efforts to build a sustainable economy.
Inadequate Support for SMEs and Lack of Business Incentives
SMEs are the backbone of Sabah’s economy, but Budget 2025 provides insufficient support for these businesses.
Although Sabah received RM6.7bil, the allocation focuses primarily on infrastructure and rural development, leaving limited direct assistance for SMEs.
The budget prioritises roads, utilities, and long-term projects, which, while beneficial, do not address immediate challenges such as access to working capital or market expansion.
Key industries like tourism, agriculture, and fisheries, which are critical to Sabah’s economy, receive no specific financial support, risking stagnation for many SMEs in the region.
Despite Sabah receiving one of the highest allocations in Budget 2025, minimal attention is given to SME development or capacity-building programmes.
There is also a lack of targeted incentives for digitalisation and innovation, crucial for competing in today’s economy.
Additionally, the unclear disbursement process raises concerns about whether local SMEs can easily access the available funds.
Without simplified funding mechanisms, strategic financial interventions, or SME-focused policies, many businesses may struggle to achieve sustainability and growth.
The absence of new tax incentives or sector-specific grants further limits entrepreneurial opportunities and discourages talent retention.
As young professionals continue to seek better prospects in Peninsular Malaysia, Sabah’s economy risks falling behind, highlighting the need for more targeted support for its SMEs.
Missed opportunities with Nusantara
Budget 2025 overlooks a major opportunity by failing to leverage Nusantara, Indonesia’s new capital in Kalimantan, for Sabah’s economic benefit.
This development marks a significant regional shift, and Sabah, with its geographic proximity and natural resources, is well-positioned to play a key role.
However, the budget outlines no initiatives to integrate Sabah’s economy with Nusantara, missing chances for cross-border collaboration, trade, and human capital exchanges.
Sabah could serve as an energy provider to Nusantara and forge vital trade partnerships, yet there are no incentives or frameworks to facilitate these opportunities.
If Malaysia neglects to align Sabah with Nusantara’s development, Indonesia’s new capital will dominate the region, leaving Sabah behind.
The absence of a strategic federal plan risks missing out on spillover benefits, deepening the economic divide between East and West Malaysia as Nusantara attracts investments, talent, and trade.
Fragmented and insufficient infrastructure investments
While Budget 2025 allocates RM6.7bil for Sabah, much of it is fragmented across multiple projects, lacking a cohesive economic strategy.
Infrastructure improvements like the Pan Borneo Highway and airport expansions, though welcome, are insufficient for long-term growth.
The budget overlooks integrated planning with no focus on special economic zones or trade hubs to leverage Sabah’s proximity to Nusantara.
Additionally, the absence of energy and trade cooperation initiatives with Kalimantan limits Sabah’s potential as a key regional partner.
Without a strategic infrastructure and investment plan, these piecemeal projects risk falling short of delivering meaningful economic returns.
Lack of federal commitment to Sabah's economic development
The piecemeal nature of federal support for Sabah underscores a larger problem, which is the lack of a coherent economic strategy for the region.
While the budget emphasises rural development and infrastructure investments, these efforts are insufficient to address the root causes of economic stagnation.
Sabah needs targeted incentives, strategic investments, and business-friendly policies to unlock its potential and reduce its reliance on federal aid.
The absence of significant new initiatives for Sabah in Budget 2025 reflects a continuing pattern of neglect by the federal government.
Without a comprehensive development framework that addresses the structural challenges faced by the region, Sabah will struggle to attract investment, create jobs, and retain talent.
The missed opportunities with Nusantara only compound these challenges, leaving Sabah at risk of falling further behind.
A call for strategic vision and commitment
Budget 2025 offers little optimism for Sabah. While infrastructure investments are welcome, the lack of targeted SME support, failure to address the brain drain, and missed opportunities with Nusantara reveal critical flaws in the federal approach.
Without a clear strategy for sustainable growth, the economic gap between Sabah and Peninsular Malaysia will widen.
The federal government must adopt a cohesive economic plan that leverages Sabah’s strengths and positions it as a key partner to Nusantara.
Sabah’s potential deserves more than piecemeal solutions; it requires a bold, long-term commitment to unlock growth and ensure the region’s future prosperity within Malaysia and the region.
Datuk Dr Pamela Yong is the Chairman of the Institute of Strategic Analysis and Policy Research (Insap). Insap, set up in 1986, is a think tank focusing on political-economic research. A not-for-profit organisation, Insap develops long-term strategies and policies relevant to the interests and aspirations of Malaysians.
