EM Europe and CIS: Select Country Risk Ratings

Kazakhstan (KAZ)

Kazakhstan’s overall risk score remains medium-high. The political violence risk level and legal and regulatory risk measures remain at medium-high. Kazakhstan continues to be an autocratic state with reform momentum having slowed after the 2022 election, while a surge in the young population and employment problems risk social unrest.  Additionally, though appearing to distance itself from Russia invasion of Ukraine, Russia trade and FDI interdependence is growing and President Tokayev tries to balance relations with Moscow. Russia also has control over the main oil export pipeline to the Caspian Sea, while trading relations with China has also grown and drawn economic activity closer to the Russia-China axis – President Xi of China has also recently recommended that Kazakhstan become a BRICS member.  However, the West has so far been reluctant to impose sanctions for fear of push Kazakhstan closer to Russia. The underlying economy momentum is good, as commodity demand is diverted from Russia and the government tries to maintain growth momentum. Though 2024 GDP is forecast at 3.1% it is projected to accelerate to 5.6% in 2025 by the IMF.  Inflation is also projected to fall back into single digit, with 8.7% forecast for 2024 and 7.0% for 2025. The exchange transfer risk has increased from medium to medium high, which partially reflects the persistent current account deficit that is projected to grow to 4.5% of GDP in 2024. However, sovereign non-payment risk remains at medium, which reflects the modest gross government debt to GDP – projected at 24% of GDP in 2024. Despite political concerns and high levels of corruption, the risk of doing business remain at medium and banking sector vulnerability is medium-low.  

Russia (RUS)

Russia’s overall risk rating remains medium-high. First, political violence is at very high rating and political interference risk remains high. After Russian President Putin consolidated his grip on the country after winning the presidential elections in March, Russia government continues to be reported to be supressing civil society, with protests peaking following Alexei Navalny’s death who was long seen as the most significant political opponent to Putin. The legal and regulatory risk remains high, while sovereign non-payment risk decreased from medium-high to medium in this rating period, likely supported by oil export volumes which are reported to hold steady despite sanctions as oil and gas revenues remain the most important single source of cash for the country. The war in Ukraine continues to cause a domestic strain in the country and the economy has turned to a war-economy as military spending remain very high and unemployment rate is at historic low levels. The inflationary pressures remain elevated and Western sanctions continue to hurt. The new set of sanctions by the U.S. Treasury Department targeting the country’s financial system on June 13, has prompted the Moscow exchange to halt trading of dollars and euros, which ignite the cost of doing business and further stoke inflation. (Note: According to Russian newspaper Kommersant, some Russian banks and exchange offices raised rates as high as 200 rubles to the dollar while the rate set on the Moscow Exchange was just under 90 rubles to the dollar on June 12). The Central Bank of Russia said it would set daily fixed dollar and euro exchange rates based on aggregated data from commercial bank purchases and sales. Despite investor’s perceptions over the Russian economy being negatively affected by the ongoing war and sanctions, as noted above, 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 and risk of doing business is at medium level. On the war front, the offensives at the front lines picked up steam after April/May as the Russian forces started their larger summer 2024 offensive operation, particularly in Donetsk and Kharkiv, aiming to seize more territory before the U.S. presidential elections in November. Putin continues to hope that Trump is reelected as U.S. president, splits western support and leading to a probable Russia-friendly peace deal with current territories, likely in 2025. The war will be the key determinant for Russian economy and politics in H2 2024 while Russia gaining significant territory in Ukraine seems unlikely.

Ukraine (UKR)

The Ukraine-Russia conflict causes Ukraine’s overall risk rating to remain high. The war’s adverse impacts continue to shape the economic and political stance of the country. Ukraine’s high risk rating comes from a very high risk rating in political violence, high risk ratings 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 increased from medium-high to high level in this rating period, particularly considering fiscal restrictions. 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 as Russian Foreign Minister Lavrov recently reiterated that Russia is not interested in any peace negotiations that do not result in Ukrainian territorial concessions beyond the parts of Ukraine that Russian forces already occupy. According to military sources, Ukraine is trying to address its manpower challenges and is forming several new brigades, but delayed and insufficient Western weapons deliveries will likely prevent Ukraine from equipping new brigades in the near future. On another note, the Ukraine peace summit in Lucerne on June 15-16 did yield the expected result as a joint intention communique signed affirming the commitment to refraining from the threat or use of force against the territorial integrity or political independence of any states, including Ukraine. Additionally, after Russian offensive operations intensified this summer, it appears Ukrainian forces are losing some ground.  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 martial law. Ignited by the adverse impacts of the war, the annual inflation rate in Ukraine increased to 3.3% in May 2024, the highest reading in the last three months. The risk of doing business in Ukraine remains at medium-level while banking sector’s vulnerability is at medium-low showing the relative strength of the banking system despite ongoing war.

Uzbekistan (UZB)

Uzbekistan’s overall risk score is at medium-high level. The political violence and political interference risks remained at medium-high while legal and regulatory risk is at very high in this rating period. Continuing to be affected by the war in Ukraine and sanctions against Russia, Uzbekistan’s economy is still strained by corruption, structural deficiencies, and high state involvement on the business environment. Securing a renewed seven-year term in 2023, Shavkat Mirziyoyev is still criticized for not being able to initiate any serious political liberalization and also sustaining pressures on media, activists and bloggers. Despite some domestic concerns, the country has been strengthening relations with Azerbaijan and Turkiye since the Russia-Ukraine war started, and the accelerating pace of the relationships seem promising. The economic momentum is also promising as the government tries to maintain growth momentum which is supported by growing FDI, population and surging government spending. The risk of doing business remains at medium-high while exchange transfers ratings increased from medium-high to high level in this rating period.  The annual inflation rate jumped to 10.6% YoY in May 2024 from 8.10% in April of 2024, and the country’s GDP expanded by a strong 6.2% YoY in Q1 2024 thanks to its agricultural sector, natural resources of oil, natural gas and gold. Even though Uzbekistan’s economy is relatively closed, and fight against rampant corruption and economic vulnerabilities continue, the medium-low banking sector vulnerability rating shows some stability.  Despite large gas and oil reserves, the country imported more gas than it exported in 2023 for the first time in its history, particularly from Turkmenistan and Russia, showing more investments are required in this field for self-sufficiency. Elsewhere, the medium-high risk level of doing business reflects concerns linked to strong state involvement in the economy harming the business environment.