Further consolidation of the government's fiscal deficit and debt burden could trigger an upgrade in Malaysia's sovereign credit ratings from A3 at present, Moody's Investor Service said.

Its Vice-president/senior analyst, sovereign risk group, Christian de Guzman said fiscal account is one of the driver for the country's rating.

Another factor taken into account is the resistance of the country's fundamental credit strengths such as macroeconomic stability, domestic capital market depth and the government debt structure.

"There has been improvement in some of the infrastructure weaknesses that has plague the Malaysian fiscal accounts over the past several years," he told a media briefing on Moody’s 2015 Outlook for Malaysian Sovereign, Banks and Corporates, here Thursday.

He said one of the infrastructure weaknesses that had been addressed was a large proportion of expenditure dedicated to fuel subsidy.

De Guzman said Malaysia has also reduced its dependency on oil revenue quite significantly, nearly 10 percentage points since the global financial crisis in 2009.

The implementation of the Goods and Services Tax (GST) this year could further improve the country's income structure and reduce further dependency on oil income, he said.

He said since Moody's assigned positive outlook to Malaysia in 2013, the country's economic growth had accelerated, fiscal deficit narrowed, debt burden stabilised, while current account surplus widened.

"We think the fundamentals for Malaysia are still intact. Although there have been headwinds such as lower oil prices, depreciated ringgit and a degree of capital flight, we think some of the risks are manageable," he added.

Meanwhile, on the depreciating ringgit, he said the local currency depreciation has limited effects on Malaysia's sovereign ratings as the government debt has been primarily in ringgit.

He said Malaysia's debt in foreign currency stood at less than three percent of the total debt compared to countries in the region such as Indonesia and the Philippines, for which about 40 per cent of their debt denominated in foreign currency.

Among Asean peers, Malaysia is ranked second to Singapore (Aa1), while Thailand was rated below at (Baa1), Indonesia (Baa3), the Philippines (Ba1), and Vietnam (B3).