KUALA LUMPUR: Malaysia's A3 government bond rating is based on an assessment of moderate economic resiliency, supported by a highly open, medium-sized economy and a well-diversified external sector, said Moody's Investors Service.

However, economic growth has been relatively dependent on public-sector expenditure, said Moody's in a report on Malaysia's credit strength and challenges.

"Although Malaysia's per capita income is lower than most rating peers, its indicators of governance, regulatory quality, and competitiveness are better than similarly rated countries," Moody's said.

It said the high degree of government financial strength was underpinned by the country's strong external position and high savings rates as compared with peers.

"Malaysia's large stock of foreign exchange reserves provides a buffer against exogenous shocks that could otherwise undermine government finances.

"Extensive price administration and low private investment have necessitated greater government spending on subsidies and infrastructure.

"Malaysia's fiscal framework has grown more dependent on commodity revenues in the absence of broad tax reform. These developments have raised structural pressures," Moody's added.

The rating agency also said Malaysia has strong and well-managed corporate and banking sectors and its state-owned enterprises were undergoing reform.

"As a result, the sovereign's exposure to contingent liabilities is quite low," it said. -- BERNAMA