KUALA LUMPUR, Aug 16 — Moody’s Investors Services has declared that Malaysia’s credit profile remains resilient despite external vulnerabilities in the form of fiscal challenges.

In its report released today, the firm explained that the country’s foreign currency reserves have climbed out of a "recent trough”, but remains vulnerable to any active non-resident investors that may cause sudden swings in capital flows.

"Our view on its credit profile does not change during periods of heightened external volatility. It would take a significant deterioration of external metrics from current levels for Malaysia's credit profile to weaken.

"Other sources of credit risk would be a sharp growth slowdown or meaningful deterioration in the public finances, neither of which we deem likely at this time,” it said.

This comes as foreigners hold 24 per cent of outstanding Malaysian government debt, and non-residents hold close to 27 per cent of total stock market capitalisation, it said, which would expose Malaysia to sudden movements in portfolio investment flows.

According to Moody’s, the situation is exacerbated by short-term external debt, which has risen to 45.2 per cent of total external debts since mid-2016.

In addition, almost 60 per cent is kept in foreign currency, which it said opens it up to some exchange rate risk.

"However, currency flexibility, prudent monetary policy and a large domestic institutional investor base buffer the impact of capital flow volatility, with large export proceeds and external assets acting as a further cushion,” it said.