Work has begun on Victoria’s $50 billion suburban rail loop, despite concerns from a major ratings agency about the state's ability to pay for the big-ticket project.

Engineers began drilling at Box Hill in Melbourne’s east on Tuesday, as the Andrews government pushes ahead with the ambitious project.

The 90-kilometre rail link, announced in the lead up to the 2018 state election, will connect every major rail line from Frankston in the southeast to Werribee in the west, via Melbourne Airport.

“I don’t think you can underestimate just how much this will change the way our city and state works, the way our transportation system operates,” Premier Daniel Andrews told reporters on Tuesday.

“We need more of those sort of infrastructure projects, not the ‘I won’t build it because I won’t get credit for it’ politics of infrastructure.”

Project construction isn’t expected to begin until 2022, and could take up to 30 years and $50 billion to complete.

Financial ratings agency Moody’s released a report on Monday cautioning Australian states against increasing debt to fund expensive infrastructure projects.

Moody’s said the states have promised to spend a total of $231 billion on infrastructure in the next four years, almost entirely funded by debt. Many of the projects were excluded from the latest state budgets.

“The magnitude of infrastructure spending which is currently underway, as well as proposed initiatives, amplifies the risk of slippage, both in terms of delivery time frames and cost overruns,” the report says.

The report also singled out the suburban rail loop as a looming “challenge” to Victoria’s treasury.

But an S&P Global Ratings report, released earlier in July, found state governments were in “sound financial positions” to withstand weaker outlooks, due to strong population growth, low unemployment and low interest rates.

The premier was unfazed by the Moody’s report and was confident the state would retain its AAA credit rating.

“We are borrowing to build. The real cost and the real pressure comes if we don’t get this infrastructure built,” he said.

“You don’t borrow an unlimited amount of money, you borrow within your capacity to repay.”

Mr Andrews was also hopeful the federal government would help pay for the loop.

The opposition has called for a business case for the loop project to be released before any further work is done.

Source: AAP