The principal driver of Moody's decision to change the outlook to negative from stable is the rising fiscal and economic challenges that the authorities face in achieving further fiscal consolidation. At the time that the structural reforms were adopted, Moody's expected that fiscal consolidation, coupled with much stronger real GDP growth (above 3%), would lead to a stabilization in the debt burden. However, a combination of the oil price shock and the slower than expected growth have undermined the economic outlook. Moody's forecasts only moderate growth of around 2.5% for 2016 and 2017, which will challenge the government's fiscal consolidation efforts.
Lower growth and a low oil price environment will reduce fiscal revenues. While fiscal reform has improved the structure of fiscal revenues, heightening resilience to oil price shocks by strengthening tax collection, Moody's forecasts that overall federal government revenues will decrease to 18.5% of GDP in 2016 from 19.3% in 2015. In response, the authorities have begun implementing expenditure measures to reduce the federal government deficit from 2.8% of GDP in 2015. Moody's forecasts a federal government deficit of 2.5% of GDP for 2016 and a gradual decline through 2018 when the deficit is likely to narrow to 2% of GDP.