Executive Summary
The November 2025 Sabah state election represents a critical inflection point for Malaysian Prime Minister Anwar Ibrahim’s government, revealing deep fractures in federal-state relations and exposing vulnerabilities ahead of the 2028 general election. While Anwar’s ally Hajiji Noor retained power through Gabungan Rakyat Sabah (GRS), the disastrous performance of Anwar’s own Pakatan Harapan (PH) coalition—winning just 1 of 20 contested seats—signals eroding support in East Malaysia and raises serious questions about the sustainability of his Unity Government.
The Election Results
Gabungan Rakyat Sabah (GRS) secured 29 seats in the 73-seat state assembly BERNAMA, with Warisan taking 25 seats, BN 6, UPKO 3, independents 5, STAR 2, PH 1, PN 1, and KDM 1 BERNAMA. GRS chairman Datuk Seri Hajiji Noor was sworn in for a second term as Sabah Chief Minister at 3:05am Malay Mail, quickly forming a government despite the hung assembly.
A Disastrous Performance for Anwar’s Coalition
The results represent a grim first electoral test for Anwar after three years in office, with his Pakatan Harapan coalition winning just one of the 20 seats it contested in Sabah, down from the seven it held previously CNBC. This is particularly concerning as the election was widely seen as a referendum on Anwar’s leadership with just two years before a national election must be called by early 2028 South China Morning Post.
Why Sabahans Rejected Federal Parties
The document you shared captures the key dynamic: Sabahans united in rejecting parties from outside the state. Political analyst Lee Kuok Tiung noted that Sabah voters valued regional-based parties, greater autonomy and improvements to basic water, electricity and road infrastructure CNBC.
A major grievance is the revenue-sharing dispute. A minister from Sabah resigned from Anwar’s cabinet after a Sabah court ruled in October that the federal government had unlawfully failed to honor an agreement entitling Sabah to 40% of federal revenue derived from the state CNBC.
Implications for Future Elections
This poor performance raises serious concerns about Anwar’s support heading into upcoming state elections in Sarawak, Melaka, and Johor. Lee Kuok Tiung stated that Anwar needs to understand local sentiment and review the government’s progress on earlier promises CNBC.
While GRS remains aligned with Anwar’s federal government, the “Sabah for Sabahans” sentiment that dominated this election signals growing autonomy movements in East Malaysia that could complicate federal politics going forward.
Case Study: The Sabah Election Results
Election Outcome
- GRS (Hajiji Noor): 29 seats (ruling coalition, federal government partner)
- Warisan: 25 seats (opposition)
- Barisan Nasional (BN): 6 seats (federal partner)
- Pakatan Harapan (PH): 1 seat (Anwar’s coalition, down from 7 previously)
- Others: UPKO (3), STAR (2), PN (1), KDM (1), Independents (5)
- Total Seats: 73
Key Findings
1. Rejection of Peninsular-Based Parties
The election crystallized a powerful “Sabah for Sabahans” sentiment. Voters decisively rejected national parties from Peninsular Malaysia, instead favoring local parties that promised greater autonomy. This trend manifested in:
- PH’s collapse from 7 to 1 seat (85% decline)
- DAP’s complete wipeout, losing core Chinese support
- Strong performance by local coalitions (GRS and Warisan combined: 54 seats)
2. The 40% Revenue Issue as Electoral Catalyst
The campaign was dominated by demands for Sabah to receive 40% of federal revenue collected within the state, as originally stipulated in the Malaysia Agreement 1963 (MA63). This issue:
- Became shorthand for decades of perceived federal neglect
- Drove voter frustration over infrastructure deficits (water, electricity, roads)
- Led to ministerial resignations (Ewon Benedick quit Anwar’s cabinet in protest)
- Positioned the election as a referendum on federal treatment of Sabah
3. Infrastructure and Development Grievances
Sabah remains Malaysia’s poorest state despite being resource-rich. Key grievances include:
- Inadequate water and electricity supply in rural areas
- Poor road infrastructure
- Perception that federal revenue from Sabah resources funds development in Peninsular Malaysia
- The Petronas Twin Towers symbolically representing wealth extracted from East Malaysia
Outlook: Short to Long-Term Implications
Short-Term (2025-2026)
Political Dynamics
- Hajiji Noor’s GRS remains aligned with Anwar’s federal government, preserving parliamentary stability
- However, GRS faces pressure to deliver on autonomy promises or risk losing credibility
- Anwar must negotiate a formula for the 40% revenue entitlement while managing fiscal constraints
Immediate Challenges
- Sabah will likely adopt Sarawak’s assertive negotiation tactics
- The revenue-sharing dispute creates precedent-setting pressure
- Political capital required to maintain East Malaysian coalition partners increases significantly
Medium-Term (2026-2027)
Critical State Elections Approaching
Sarawak State Election (by April 2027)
- Gabungan Parti Sarawak (GPS) expected to dominate with its “Sarawak for Sarawakians” platform
- GPS swept 76 of 82 seats in 2021; likely to replicate success
- PH faces potential wipeout similar to Sabah
- Sarawak’s premier has renamed his position to “Premier” (not Chief Minister), asserting equal partnership status
- Sarawak’s state-owned oil company (Petros) pushing for full control of gas resources
Melaka and Johor Elections (late 2026 – mid 2027)
- These peninsular states are UMNO strongholds—crucial for BN, Anwar’s coalition partner
- Elections occur 9-12 months before the national election, serving as direct barometers
- Poor performance could fracture the PH-BN Unity Government
- UMNO’s internal divisions may worsen if results disappoint
Long-Term (2027-2028+)
Structural Shifts in Malaysian Federalism
- Rising East Malaysian Assertiveness
- Sabah and Sarawak together hold 57 of 222 parliamentary seats (25.7%)
- Both states pushing for constitutional amendments to permanently reserve 35% of parliamentary seats for Borneo states
- Growing leverage over federal government formation
- Parallel demands for greater autonomy in immigration, education, healthcare
- Financial Decentralization Pressure
- Sabah’s 40% revenue claim estimated at billions in annual payments if fully implemented
- Sarawak demanding similar treatment, plus higher oil royalties (beyond current 5%)
- Federal government’s fiscal deficit (targeted at 3.8% of GDP in 2025) limits ability to accommodate
- Risk of setting precedents that other states could exploit
- National Unity Concerns
- Historical echoes of Singapore’s 1965 separation from Malaysia
- Small but vocal independence movements gaining social media traction
- Anti-federal sentiment strong, especially among younger voters
- Former PM Mahathir warned against autonomy push eroding national cohesion “to the point of total separation”
Impact on 2028 General Election
- East Malaysian parties could hold decisive balance of power
- “Sabah/Sarawak for Sabahans/Sarawakians” sentiment may supersede national party loyalties
- Anwar faces dual pressures: satisfying East Malaysian demands while maintaining peninsular support
- Risk of hung parliament increases if PH continues losing ground
Proposed Solutions & Strategic Recommendations
For the Malaysian Federal Government
Immediate Actions (2025-2026)
- Transparent Revenue Formula
- Establish independent audit of federal revenue collected from Sabah
- Propose phased implementation of 40% entitlement with clear milestones
- Create special development fund for infrastructure gaps
- Ensure transparent, published accounting to rebuild trust
- Accelerated MA63 Implementation
- Complete outstanding MA63 commitments (11 of 21 demands resolved; 10 remain)
- Publicly release full list of 21 demands with implementation timeline
- Remove Official Secrets Act classification on MA63 negotiations
- Create joint federal-state committee with genuine East Malaysian authority
- Symbolic Gestures of Partnership
- Avoid condescending language; treat Sabah and Sarawak as equal partners
- Increase East Malaysian representation in federal cabinet (currently ~50%, but often in junior positions)
- Hold federal cabinet meetings in East Malaysia more frequently
- Support constitutional amendment for 35% Borneo state parliamentary seats
Medium-Term Reforms (2026-2028)
- Infrastructure Investment Initiative
- Launch “East Malaysia Development Plan” with RM50-100 billion allocation
- Focus on water, electricity, roads, healthcare, and education
- Ensure projects are delivered by local contractors to build state capacity
- Create transparent procurement and monitoring systems
- Revenue-Sharing Reform
- Review special grants formula for both Sabah and Sarawak
- Consider oil royalty increases (currently 5%) as alternative to 40% revenue share
- Explore federal-state partnership model for resource development
- Ensure any formula is constitutionally protected against future reversal
- Political Accommodation
- Support local party leadership rather than imposing peninsular party dominance
- Allow East Malaysian coalition partners genuine autonomy in state decisions
- Avoid interfering in state-level politics
- Recognize that “Sabah/Sarawak-first” sentiment is legitimate, not seditious
Long-Term Structural Changes (2028+)
- Constitutional Reform
- Enshrine MA63 protections more explicitly in federal constitution
- Consider formal “states within states” federal model for Sabah and Sarawak
- Grant East Malaysian states veto power over federal policies affecting their rights
- Establish permanent constitutional commission on federal-state relations
- Economic Self-Determination
- Allow Sabah and Sarawak greater control over natural resource management
- Create framework for state-owned enterprises (like Sarawak’s Petros) without undermining Petronas
- Devolve more taxation powers to state level
- Support East Malaysian economic diversification beyond resource extraction
For East Malaysian State Governments
Strategic Positioning
- Unified Negotiation Bloc
- Sabah and Sarawak should coordinate demands rather than competing
- Present unified front in parliamentary votes on federal budget
- Share best practices (Sabah can learn from Sarawak’s assertive approach)
- Joint research on historical revenue calculations
- Institutional Capacity Building
- Develop professional state civil services capable of managing devolved powers
- Invest in state-level think tanks for policy development
- Build transparent financial management systems
- Create state-level economic planning agencies
- Responsible Autonomy Advocacy
- Frame demands as restoration of MA63 rights, not separatism
- Emphasize partnership and mutual benefit with federal government
- Build public support through transparent communication
- Avoid inflammatory rhetoric that could provoke federal backlash
For Opposition Parties
Strategic Opportunities
- Position as Champions of Federalism
- Support East Malaysian autonomy demands
- Propose concrete federal-state reform agenda
- Build relationships with local East Malaysian parties
- Offer alternative coalition models that respect state rights
- Differentiate from Federal Government
- Criticize federal government’s slow MA63 implementation
- Propose faster, more generous revenue-sharing formulas
- Position as genuine partners rather than colonial-style overseers
Singapore Impact Assessment
Economic Implications
Direct Trade and Investment Effects
Singapore’s substantial investment exposure to Malaysia (RM52.7 billion in first nine months of 2025, making Singapore the top foreign investor) faces several risk scenarios:
- Political Instability Premium
- Prolonged federal-state tensions could introduce policy uncertainty
- Investment decisions may be delayed pending clarity on revenue-sharing outcomes
- Border-crossing efficiency (critical for Johor-Singapore Special Economic Zone) could be affected by political disputes
- Regional Development Opportunities
- If Sabah and Sarawak gain greater autonomy, they may pursue independent investment promotion
- Singapore firms could benefit from direct state-level partnerships
- East Malaysian infrastructure development creates contracting opportunities
- Potential for Singapore-Sabah/Sarawak direct economic cooperation
Johor-Singapore Special Economic Zone (JS-SEZ)
The JS-SEZ, designed for free movement of goods and people, faces indirect risks:
- Political instability in Kuala Lumpur could slow federal approval processes
- Revenue-sharing disputes might affect federal willingness to grant Johor special status
- If East Malaysian states successfully gain autonomy, Johor may demand similar treatment
- However, JS-SEZ remains strategically important for both countries and likely to proceed
Strategic Considerations for Singapore
Diplomatic Positioning
- Maintain Neutrality on Internal Malaysian Politics
- Avoid public commentary on federal-state disputes
- Continue working with both federal and state governments
- Position Singapore as reliable economic partner regardless of internal Malaysian politics
- Diversified Engagement Strategy
- Strengthen relationships with East Malaysian state governments directly
- Explore state-level economic partnerships alongside federal relationships
- Support infrastructure connectivity projects that benefit all parties
- Historical Awareness
- Singapore’s own separation from Malaysia in 1965 involved similar revenue-sharing disputes
- Singapore originally agreed to contribute 40% of its revenue to federal government; disputes led to separation
- Sabah and Sarawak leaders were excluded from separation consultations and felt betrayed
- This history creates sensitivities; Singapore should avoid appearing to encourage separatism
Economic Risk Management
- Investment Diversification
- Monitor political developments closely for investment portfolio implications
- Consider risk-adjusted returns on Malaysian investments
- Diversify investments across both peninsular and East Malaysian states
- Maintain flexibility to shift investment focus based on political stability
- Supply Chain Resilience
- Malaysian political instability reinforces need for supply chain diversification
- Consider alternative sourcing for critical imports from Malaysia
- However, Malaysia’s newfound political stability (relative to 2018-2022) remains strong by regional standards
- Financial Sector Exposure
- Singapore banks have exposure to Malaysian sovereign debt
- Monitor Malaysia’s fiscal position (public debt ~68% of GDP, deficit targeting 3.8%)
- Revenue-sharing settlements could strain federal finances
- However, Malaysia maintains investment-grade credit ratings (S&P: A-, Moody’s: A3)
Opportunities for Singapore
- Regional Financial Hub
- Political uncertainty in Malaysia reinforces Singapore’s attractiveness as stable financial center
- Malaysian firms may increase Singapore-based operations for risk mitigation
- Potential for Islamic finance partnerships with East Malaysian states
- Infrastructure Development Partnerships
- Singapore firms have expertise in urban planning, port development, water management
- East Malaysian infrastructure needs align with Singapore strengths
- Government-linked companies (GLCs) could partner with state-level enterprises
- Knowledge Economy Collaboration
- Education partnerships with East Malaysian states
- Technology transfer agreements
- Digital economy infrastructure development
Long-Term Outlook (2030-2040)
Scenario Planning
Scenario 1: Successful Federal Accommodation (Probability: 40%)
Characteristics:
- Federal government implements generous revenue-sharing formula
- MA63 rights fully restored with constitutional protections
- East Malaysian states gain “special status” within federation
- Infrastructure investment rapidly closes development gaps
- Political stability maintained
Implications:
- Malaysia emerges stronger with more balanced federalism
- Economic growth accelerates in East Malaysia
- Singapore benefits from stable, prosperous neighbor
- Regional integration deepens
Scenario 2: Continued Friction and Gradual Decentralization (Probability: 45%)
Characteristics:
- Revenue-sharing negotiations drag on for years
- Partial concessions granted but perceived as insufficient
- State-federal tensions remain high but manageable
- East Malaysian parties permanently hold balance of power
- Incremental autonomy gains through negotiation
Implications:
- Policy uncertainty affects long-term investment planning
- Stop-start development patterns in East Malaysia
- Singapore must navigate complex multi-level government relationships
- Regional integration progresses slowly
Scenario 3: Constitutional Crisis and Separation Risk (Probability: 10%)
Characteristics:
- Federal government rejects or reneges on revenue-sharing commitments
- Major political incident triggers constitutional crisis
- Independence movements gain mainstream support
- International intervention or mediation required
- Potential referendum on East Malaysian autonomy/independence
Implications:
- Severe economic disruption in Malaysia
- Regional instability affecting ASEAN
- Singapore faces dilemma of neighbor fragmentation
- Potential refugee flows, border security issues
- Geopolitical realignment in Southeast Asia
Scenario 4: Status Quo Muddling Through (Probability: 5%)
Characteristics:
- Federal government makes minimal concessions
- East Malaysian states accept slow progress
- No major breakthroughs or crises
- Gradual demographic and economic changes reduce tensions
Implications:
- Continued underdevelopment in East Malaysia
- Persistent but low-level political friction
- Limited impact on Singapore
- Missed opportunity for Malaysian economic transformation
Critical Success Factors
For successful federal accommodation:
- Political will from federal leadership to genuinely share power and revenue
- Fiscal capacity to fund revenue-sharing without destabilizing federal finances
- Constitutional flexibility to accommodate asymmetric federalism
- Public support in Peninsular Malaysia for East Malaysian demands
- International support for Malaysia’s territorial integrity and federal system
Warning Indicators
Events that would signal movement toward crisis:
- Federal government appeals Sabah 40% court ruling
- Mass resignations of East Malaysian ministers from federal cabinet
- State-level referendums or independence declarations
- Economic sanctions or boycotts between states
- International intervention or mediation offers
- Significant violence or civil unrest
- Capital flight from Malaysian markets
Conclusion
The Sabah state election results represent far more than a local political contest. They signal a fundamental renegotiation of Malaysia’s federal structure, with Sabah and Sarawak leveraging their political importance to demand long-denied rights and resources. For Prime Minister Anwar Ibrahim, this creates an existential challenge: accommodate East Malaysian demands at significant fiscal and political cost, or risk losing the very coalition partners that keep him in power.
The outcome will shape not just Malaysian politics but regional dynamics. Singapore, as Malaysia’s largest investor and closest neighbor, must carefully monitor these developments while maintaining strategic flexibility. The historical parallels to Singapore’s own separation from Malaysia in 1965 over similar revenue-sharing disputes serve as a reminder of how quickly federal arrangements can unravel when economic grievances meet political deadlock.
The path forward requires statesmanship, fiscal creativity, and genuine commitment to federal partnership. The alternative—continued drift toward East Malaysian alienation—risks fragmenting Southeast Asia’s third-largest economy with unpredictable consequences for regional stability and prosperity.
Key Recommendations:
- Federal government must prioritize transparent, generous revenue-sharing settlement
- Constitutional reforms should enshrine MA63 protections permanently
- Infrastructure investment must rapidly close East-West development gap
- Singapore should maintain strategic flexibility and strengthen state-level relationships
- Regional stakeholders should support Malaysia’s territorial integrity while encouraging fair federalism
The next 12-24 months, covering the Sarawak, Melaka, and Johor elections, will be decisive in determining whether Malaysia successfully navigates this federal challenge or faces prolonged constitutional crisis.