Moody's Investors Service has commended Khazanah Nasional Bhd over the key role it plays in national development through continuous strategic investment.

It said Khazanah's leading role in the Malaysian Airlines restructuring plan illustrated the potential impact of sovereign wealth funds on debt sustainability.

"As part of our Sovereign Bond Ratings methodology, we regard Khazanah, Malaysia’s sovereign wealth fund as supporting the country’s rating," Moody's said in its 'Credit Analysis on Malaysia' report Wednesday.

Khazanah, an investment arm of the Malaysian government, held assets worth RM135.1 billion (13.7 percent of the gross domestic product - GDP) at the end of 2013.

While it does not receive regular infusions of capital from the government, Moody's said the value of its assets has nevertheless grown from only RM50.9 billion (10.3 percent of GDP) in 2004.

Moody's said Khazanah's dividend payments to the government may dwindle as it is injecting up to RM6 billion into the national carrier for the revamp over the next three years.

However, the rating agency said the move would refrain the government from using budgetary resources that could blunt the effectiveness of ongoing fiscal consolidation.

"Despite the expenditure restraint demonstrated in the government's budgetary accounts, the true size of the fiscal impulse is hard to discern, given the increasing use of off-budget financing vehicles and the quasi-fiscal activities of government-linked companies (GLCs).

"While the government does not publicly disclose the scale of non-financial public sector debt, we believe associated risks are manageable as suggested by the solid track record of corporate governance and profitability amongst most GLCs, as well as Malaysia's relatively high institutional strength," it said.

The increase in explicitly guaranteed debt gives some indication of the effect of quasi-fiscal activities on the government's debt position, Moody's said.

"Many of these guarantees were extended to GLCs to lower the cost of financing for projects included in the government's Economic Transformation Programme.

"However, these increases do not incorporate implicit guarantees or other contingent means of support extended by the government," it added.