EM Europe/CIS: Country Risk Ratings

Armenia (ARM)

Armenia’s overall risk level remains medium high. Vahagn Khachaturyan remains president of the country with Nikol Pashinya as prime minister. Political violence remains high, as legal & regulatory risk and political interference remain medium. Four Armenian soldiers were recently killed on the border with Azerbaijan, the first incident between the two countries since they started discussing a peace deal. Armenia is reportedly considering constitutional changes that are required by Azerbaijan for a potential peace deal. However, thousands of Armenians have declared their frustration over the proposed constitutional change through a petition. Armenia has become distant to its former ally Russia after it chose to not help Armenia keep Karabakh in its territory and now considers India and France as their biggest military allies. As a gesture of goodwill Azerbaijan has released 32 military servicemen and in exchange Armenia will release two military servicemen. Supply chain disruption remains medium. Growth is expected to drop to 5% in 2024, compared to 7% in 2023. CPI is forecast to rise to 4% in 2024, depicting a 0.5% increase from 2023. The Central Bank of Armenia has decided to imply an expansionary monetary policy over the past 9 months, by decreasing the key interest rate from 10.75% to 8.75%. Armenia’s current account deficit is projected to increase by 0.9% of GDP from -1.4% to -2.3% in 2024, with a government debt/GDP ratio of 48.7%. Sovereign non-payment remains medium and exchange transfer has increased from medium low to medium, given the less favourable current account dynamics. Armenia’s dram has appreciated by about 8.7% against the U.S. Dollar, since October 2023, reflecting largely a less strong USD. Meanwhile, the risk of doing business remains medium low. Armenia presents a variety of opportunities for investors, however there are several obstacles, such as the current conflict with Azerbaijan and a poor judiciary system. Banking sector vulnerability and the inability of government to provide fiscal stimulus remain medium.

Belarus (BLR)

Belarus’ overall risk score remains high. The political violence risk level is at medium-high while legal and regulatory risk is very high. The country held parliamentary and local elections on Feb. 25, alleged to be among the most flawed ballots in the thirty-year reign of President Lukashenko as the opposition candidates were not permitted, only loyalist candidates. The election was the first to take place in Belarus since the presidential ballot of August 2020. (Note: Lukashenko stated on February 25 that he intends to run in 2025 for what would be his eighth consecutive presidential term). Because the allegations that the elections were not exercised freely due to political oppression, legal proceedings were initiated against researchers and journalists on charges of conspiracy to seize power. Consequently, a climate of heightened political tension remains in the country. In this respect, political interference, the risk of doing business and supply chain disruption remain at medium-high. Belarus was significantly impacted by the Ukraine-Russia war, the spillover of the war on the country remains evident partly because of close ties with Russia. On this matter, President Lukashenko recently said that Russia has completed its shipments of tactical nuclear weapons to Belarus, several hundred miles closer to NATO territory, raising Western eyebrows. As noted, the war in Ukraine continues to affect Belarussian economy negatively as the sanctions caused Belarus to be more attached to the Russia’s economy. The annual inflation rate in Belarus increased to 5.9% in January 2024 from 5.8% in December, marking the highest reading since March 2023 as the high cost of living continues to burden Belarusian citizens.

Kazakhstan (KAZ)

Kazakhstan’s overall risk score is at medium-high level. The political violence risk level is at medium-high while legal & regulatory and political interference risks remained medium-high in this analysis period. One reason for strong political risks is the recent resignation of the government, led by Prime Minister Alikhan Smailov, which was accepted by President Kassym-Jomart Tokayev on February 5. Smailov held the post of Prime Minister since January 2022 coup attempt. After Smailov’s government resigned, the president Tokayev levelled a host of criticisms at the former cabinet, complaining about the low efficiency of the budget, tax policies, and government spending of public funds. President Tokayev signed a decree on February 6 to appoint Olzhas Bektenov as the new prime minister, who was the former head of President’s executive office since April last year. Despite Tokayev repeatedly highlighted Bektenov’s knowledge in the economic sphere and great organizational skills, opposition continues to express concerns, igniting risks to political stability which remains high. Despite this, the economy momentum is good as the new government tries to maintain growth momentum by attracting more FDI and boosting the size of the economy to $450 billion by 2029. The risk of doing business and exchange transfers ratings are at medium level while corruption remains one of the core problems. The annual inflation rate slowed to 9.1% YoY in March 2024 making it the lowest inflation rate reading since February 2022. Kazakhstan's GDP expanded by a strong 5.1% in 2023, up from 3.2% in the previous year. Additionally, Kazakhstan's economy has so far proved to be resilient to the fallout from the war in Ukraine, but it seems it will remain vulnerable to energy-related price and production disruptions due to economic and political exposure to Russia. Despite political concerns, high corruption and economic vulnerabilities, the medium risk of doing business and low banking sector vulnerability demonstrate the potential of Kazakh economy. 

Russia (RUS)

Russia’s overall risk rating remains medium-high. First, political violence is at very high rating and political interference risk is high. As widely expected, Putin secured his fifth term in Kremlin on March 15-17 presidential elections despite alleged concerns that the election did not occur under free and fair conditions. Additionally, there were some moderate protests during and after the elections which caused the political tension to increase. The legal and regulatory risk remains high and sovereign non-payment risk is medium-high as the war in Ukraine continues to cause a domestic strain. While political and military issues remain critical, since the elections are over, the focus has now shifted to the economy. Russian economy continues to struggle as inflationary pressures remains elevated, sanctions continue to hurt, energy earnings declines, and currency weakening accelerates. (Note: Ruble’s (RUB) weakness cause concerns over the inflation trajectory as RUB weakened by around 20% against the dollar in 2023, and lost 1.3% and 1.4% of its value in January and February, respectively). The domestic demand continues to be stronger than the production of goods and services given the tight labor market, restraining the expansion of output. The military spending remains high due to ongoing war in Ukraine. Despite investor’s perceptions over the Russian economy being negatively affected by the ongoing war and sanctions, Russia continues to enjoy plenty of room to stimulate growth via fiscal policy, given the low government debt/GDP trajectory while the banking sector vulnerability remains medium-low. On the war front, we see a continued protracted conflict as the war will likely remain deadlocked unless Donald Trump is elected U.S. President in November and threatens to curtail Ukraine funding. We expect Russia to increase the intensity of the offensive operations in Ukraine while preparing for an expected offensive effort in summer 2024 before the U.S. elections. However, Russia will likely struggle to launch a concerted large-scale offensive operation in multiple operational directions simultaneously. The war will be the key determinant for the course of Russian economy and politics in 2024.

Ukraine (UKR)

The Ukraine-Russia conflict, which is coming to a deadlock, continues to cause Ukraine’s overall risk rating to be high. The war’s adverse impacts continue to shape the economic and political stance of the country.  There have been no changes in any of risk levels in this reporting period. Ukraine’s high risk rating comes from a very high risk rating in political violence, high risk rating in legal & regulatory risk, supply chain disruption and sovereign non-payment risk, with political interference and exchange transfers posing medium-high risk. The inability of government to provide stimulus remain at medium-high, particularly considering Western financial support remains questionable. On the war front, it seems the conflict will be deadlocked unless Donald Trump is elected U.S. president in November and threatens to curtail Ukraine funding.  Additionally, Russian offensive operations will likely intensify in the upcoming months as Ukrainian Military Intelligence Directorate Head Budanov indicated on April 7. Ukraine expects Russian offensive operations to accelerate in late spring and early summer (late May or June), particularly in the Donbas region at Chasiv Yar, Bakhmut and in the direction of Pokrovsk, close to Avdiivka. The success of Russian military operations will partly depend on when and what kind of aid Ukraine will receive from Western world. The war continues to devastate the country, with serious damage already on the country’s infrastructure such as road, rail and energy networks, which will likely need plenty of time and extra funds to repair. The country is still governed under the martial law. Despite adverse impacts of the war, the annual inflation rate in Ukraine decelerated to 4.3% in February 2024, its lowest level since November 2020. Additionally, the risk of doing business in Ukraine is at medium-level while banking sector’s vulnerability is at medium-low.