Australia rating affirmed, banks a risk - Moody's

SYDNEY May 2 (Reuters) - Moody's Investors Service on Monday affirmed the top rating for Australia's government debt to reflect the country's strong economic performance, though it noted local banks' borrowing overseas was one source of risk.

Moody's said the outlook for Australia's Aaa ratings remains stable, based on the country's very high economic resiliency, very high government financial strength, and very low susceptibility to event risk.

"In particular, the framework for fiscal policy is transparent and has, until now, consistently kept government debt at low levels," the agency said in a statement.

Moody's said that though the risks to Australia's rating were very low, one vulnerability was the dependence of the economy and Australia's banks on foreign funding, more so than in most other advanced economies.

"The large size of the country's negative net international investment position is a vulnerability in times of global financial market stress," it said.

The agency said the low level of government debt meant the Labor government had time to return the budget to surplus, having run up a big deficit in the wake of the global financial crisis. The government delivers its annual budget next week and is committed to returning the budget to surplus by 2012/13.

"Whether it reaches a balanced position in 2012-13 -- as targeted by the government -- or somewhat later is not important as long as the improving trend is in place," added Moody's. "Because of its low debt levels, the government has some leeway in this regard."

Moody's expects Australia's economy to grow 3.5 percent in 2011, up from 2.6 percent in 2010, thanks in part to strong Asian demand for the country's commodity exports. (Reporting by Wayne Cole; Editing by Ed Davies)