Russia's Ba1 rating but assigned a negative outlook to reflect the risk of further erosion of the government's fiscal savings in the context of a lower oil price environment. While there has indeed been some erosion of buffers in the meantime and the government's fiscal performance has fallen short of its own expectations, Moody's now believes that the downside risks identified in April 2016 have diminished to a level consistent with a stable outlook. The stabilization of the rating outlook partly reflects external events, and in particular the increase in oil prices to a level consistent with the government's budget assumptions. The stable outlook also reflects the plans the government has put in place to consolidate its finances over the medium term, and the slow recovery in theeconomy following almost two years of recession.

FIRST DRIVER: NEW MULTI-YEAR FISCAL STRATEGY IS MORE LIKELY TO CONTAIN DEBT AND PRESERVE GOVERNMENT SAVINGS

The resurrection of the three-year framework for the federal government budget at the end of last year -- the first medium-term fiscal plan since the oil price collapse rendered the 2015-17 program unrealistic -- reflects an ambitious fiscal consolidation strategy incorporating conservative spending and revenue assumptions. The deficit-to-GDP ratio is forecast to narrow by roughly one percentage point per year between 2017 and 2019, which would contain the growth in government debt. Whereas Moody's did not view the 2016 budget deficit goal as realistic because of the government's assumptions regarding oil prices relative to its own projections at the time, Moody's believes that these new consolidation targets