Moody's Investors Service upgraded its outlook Monday on South Korea's sovereign credit rating to "positive" from "stable," citing the country's improving fiscal status and solid economic growth, the finance ministry said.

The move came after the credit rating agency raised the government bond rating of South Korea, Asia's fourth-largest economy, from A2 "stable" to A1 "stable" in April 2010.

"The credit rating agency gave high marks to the country's improving fiscal fundamentals, better external financing conditions, a reduction in the banking sector's external vulnerability and a relatively strong gross domestic product growth trend over the medium term," the ministry said.

Choi Jong-ku, the finance ministry's deputy minister for international affairs, said South Korea has been lauded for controlling state debt at manageable levels despite persistent global financial woes.

He said the country's ability to manage inflationary pressure and pay back outstanding debt by both the public and banking sector helped with the outlook shift.

"Moody's also said the sudden death of North Korean leader Kim Jong-il early in the year has not adversely affected the country's geopolitical risks because Seoul has been able to maintain its strong security alliance with the United States," the official said.

Choi added that the positive outlook raised the possibility the country's overall bond rating could be upgraded in the future.

He, however, warned that "positive" outlook could change for the worse if tensions with North Korea mount, banks have trouble raising funds or the government's fiscal balance posture is hurt.

The latest move by Moody's comes as South Korea's sovereign rating has slowly recovered from the 1997-98 Asian financial crisis.

Fitch Ratings raised the country's outlook to A-plus "positive" in November with Standard & Poor's Rating Service maintaining A "stable" rating.

Improvements in a sovereign ratings can reduce the cost of borrowing from abroad and help attract business investment and commerce, both of which are crucial for economic growth. (Yonhap News)