EM Europe/CIS: Country Risk Ratings

Albania (ALB)
Albania’s overall risk level remains medium. Edi Rama remains prime minister of the country since 2013, after winning the 2021 elections. Political violence and political interference remain medium high, with legal & regulatory risk at a medium high rating. Albania’s EU membership status is uncertain despite claiming candidacy in 2014. New talks have been taking place between the EU and the Western Balkan countries to enter the European Union, however a solution has not been found yet. Firstly, Albania would have to meet the Copenhagen criteria. Edi Rama has mentioned that a new approach should be considered for candidates, as he believes that this process requires significant time. Meanwhile, Supply chain disruption remains medium. Albania’s growth is expected to experience a decrease in 2023 to 3.6% and 3.3% in 2024. Agriculture continues to dominate the economy, which employs about half of the workforce. However, the services and the tourism industries have begun to improve drastically post COVID. Albania’s inflation is forecasted to be 4.8% in 2023 a 1.9% decrease from 2022, after the global increase in oil and food prices and 4% in 2024, according to the IMF. The central bank of Albania has increased the key interest rate from 0.5% to 3.0% over the past 12 months, in their effort to fight global inflation. The current account is projected to be at the same levels in 2023 at -6% and decrease to -5.9% in 2024, according to the IMF. Sovereign non-payment remains medium, as exchange transfer decreases from medium to medium low. The value of the domestic currency, the Albanian Lek has managed to appreciate significantly in the past 12 months. The risk of doing business, as well as the inability of government to provide fiscal stimulus remain medium, as banking sector vulnerability remains medium low. 

Belarus (BLR)
Belarus’ overall risk score remains high. The political violence risk level is at medium-high while legal and regulatory risks increased to very high in this risk analysis period compared to the previous one. The country will have parliamentary elections on Feb. 25, and there are concerns that the elections will not be conducted freely due to alleged political oppression. In this respect, Belarus’s permanent representative to the Organization for Security and Cooperation in Europe (OSCE), Andrei Dapkiunas, announced on Jan. 8 that Belarus would refrain from inviting observers from the OSCE to monitor the country’s upcoming elections. Additionally, political interference and the risk of doing business remain at medium-high level. According to the Human Rights Watch’s World Report 2024, which was released on Jan. 11, Belarusian authorities carried out a widespread and systematic crackdown on dissent and on the spread of information about rights abuses during 2023. Having been significantly affected by the Ukraine-Russia war, the spillover of the war on Belarus remains evident as the country continues to maintain close ties with Russia. The president of Belarus, Lukashenko, recently stated that Russia has completed its shipments of tactical nuclear weapons to his country, an initiative that raised strong concerns in neighboring Poland and elsewhere in the region, drawing attention from NATO countries. The war continues to adversely affect Belarussian economy as the sanctions have caused Belarus to be more dependent on Russia’s economy. The annual inflation rate in Belarus increased to 5.8% in December of 2023 from 5.4% in November, marking the highest reading since March 2023 as the high cost of living continues to place a burden on Belarusian citizens.

Bosnia and Herzegovina (BIH)
Bosnia’s overall risk level remains medium high. Źeljko Komšić remains the Croat representative in tripartite presidency, Denis Bećirović the Bosnian representative president and Željka Cvijanović the Serb representative, after being elected in November 2022. Źeljko Komšić and Denis Bećirović were elected from the Federation of Bosnia and Herzegovina entity, whilst Željka Cvijanović was elected from the Republika Srpska entity. Political violence and political interference remain medium high with legal & regulatory risk remaining high. Corruption tends to be a major issue in Bosnia, especially in the form of bribery to public officials, such as doctors, police officers, tax officers and judges. Meanwhile, Bosnia and Herzegovina was accepted as a candidate to join the EU in late 2022. The executive of the EU has mentioned that talks between the two parties will take place, about Bosnia officially joining, once the country meets the require conditions. Supply chain disruption remains medium high. Growth in Bosnia is expected to decrease in 2023 to 2%, but increase in 2024 to 3%, according to the IMF. CPI inflation is forecast to drop to 5.5% in 2023 and to 3% in 2024. The Central Bank, after inflation began to increase, decided to apply a contractionary monetary policy by raising interest rates up to 4.45% in July 2023. It then started to drop interest rates to 4.01% in September and has not changed them since. The current account deficit is projected to decrease in 2023 by 0.2% to -4.3% and to -3.8% in 2024. Sovereign non-payment and exchange transfer remain medium. The domestic currency, the Bosnia-Herzegovina Convertible Marka is pegged to the Euro at a rate of BAM 1 for EUR 0.51. The risk of doing business remains medium high, as banking sector vulnerability remains medium low. Doing business can become challenging, due to the high levels of corruption, but also complex legal and regulatory frameworks.

Georgia (GEO)
Georgia’s overall risk level remains medium. Irakli Garibashvili remains prime minister of Georgia after being elected in 2021. Political violence remains medium high, as political interference and legal & regulatory risk remain medium. Thousands of protesters rallied outside the Georgian parliament in April, accusing the government of being controlled by the Russian government, but also for jailing political opposition and silencing the media. Georgia recently allowed Russia to establish a naval base in the region of Abkhazia, as Ukraine’s attacks to Russia from the Black Sea have increased. Meanwhile, Georgia has been seeking to enter the European Union and the EU executive has proposed to grant Georgia candidate status, once it fulfils certain conditions. Supply chain distribution remains medium low. Georgia is expected to witness a decrease in growth in 2023, reaching 6.2% and slow even further in 2024 to 4.8%. CPI is forecast to decrease drastically in 2023 from 11.9% to 2.4% and rebound in 2024 to 2.7%, according to the IMF. The central bank of Georgia has decreased the interest rate from 11% to 10% in 2023 now that the inflation fight has been successful.  The current account deficit is projected to increase and reach -6.1% in 2023, but slightly decrease in 2024 to -5.8%. Sovereign non-payment and exchange transfer thus remain medium. The value of the Georgian Lari the domestic currency has not changed significantly in 2023. The risk of doing business, banking sector vulnerability and the inability of government to provide fiscal stimulus remain medium low. 

Kazakhstan (KAZ)
Kazakhstan’s overall risk score remains medium-high. The political violence risk level has increased to medium-high from medium while legal and regulatory and political interference risks remained medium-high in this risk analysis period, when compared to previous one. Kazakhstan continues to distance itself from Russia invasion of Ukraine, though Moscow did come to President Tokayev support during the January 2022 coup attempt. According to a recent statement by the Minister of Trade and Integration of Kazakhstan, Arman Shakkaliev, not a single case of sanctioned dual-purpose goods being sent by Kazakh companies to Russia was exposed in the last six months, as expected by the Western block. The domestic political environment continues to improve slowly on a multi-year basis, with president Tokayev’s allowing a move towards different opinions after the March 2023 parliamentary elections, but the risks of political stability remains high. The economy momentum is good, as commodity demand is diverted from Russia and the government tries to maintain growth momentum. The inflation decelerated in 2023 as the rate eased to 9.8% in December 2023 from 10.3% in the previous month, marking the lowest reading since February 2022. The economy continued to grow strong in 2023 as it advanced by 4.7% YoY in Q3 of 2023, following a 5.1% rise in the previous period. Kazakhstan's economy has so far proved to be resilient to the fallout from the war in Ukraine, which is largely due to still-elevated global energy prices. Kazakhstan will remain vulnerable to energy-related price and production disruptions, as well as to its large economic and political exposure to Russia. Aiming to increase trade relations with China, the country recently launched the construction of a new railway line to China, which is expected to lift the trade turnover. Despite political concerns and high corruption, the risk of doing business remain at medium and banking sector vulnerability is low, showing potential of Kazakh economy.   

Moldova (MDA)
Moldova’s overall risk level remains high. Maia Sandu remains president of the country since 2020 and Dorin Recean has now been serving as prime minister since February 2023. Maia Sandu will be facing Renato Usati, former mayor of Baiti and leader of “Our Party” in the 2024 presidential elections. Political violence remains very high, as political interference and legal & regulatory risk remain high. Thousands protested against Maia Sandu and the government about the high cost of living and accused her of dragging the country into the war in Ukraine. Moldova is currently on track to gain EU-membership status, a process that has been sped up after Russia’s invasion in Ukraine. Corruption continues to be a great challenge, despite the current president’s efforts to reduce it. Supply chain disruption remains medium high. Moldova is expected to report a growth of 2.0% in 2023 and 4.3% in 2024, after a growth of -5% in 2022, according to the IMF. Moldova’s economy is highly dependent on the production of agricultural product, such as fruits and vegetables. Moldova’s CPI is expected to reach 13.3% in 2023 and 5% in 2024, after recording a CPI of 28.6% in 2022. The war in Ukraine has had a big impact on Moldova’s economy, leading to high cost of living. However, the Central Bank of Moldova continues to decrease the interest rate from 20% down to 5% in the past 12 months. The current account deficit is expected to decrease in 2023 to -12.1% and reach -10.9% by 2024, according to the IMF. Sovereign non-payment thus remains high, as exchange transfer remains very high. The domestic currency, the Moldovan Leu has slightly appreciated in value against the Euro, during the past 12 months. The risk of doing business remains medium with banking sector vulnerability at a medium low. 

North Macedonia (MKD)
North Macedonia’s overall risk level decreases from medium high to medium. Dimitar Kovačevski remains prime minister of the country, since 16 January 2022. Political violence and political interference remain medium, with legal & regulatory risk remains medium high. Corruption levels tend to be relatively high in North Macedonia compared to other European countries. North Macedonia, as well as other countries in the Balkan area have been seeking to gain membership to the European Union and currently have EU candidate status. EU member Bulgaria has been an obstacle for Skopje to join the EU, as Bulgaria requests the re-interpretation of the country’s history, but also that the minority of Bulgarians that live in Skopje are mentioned in North Macedonia’s constitution. Supply chain disruption remains medium. Growth is forecasted to be at 2.5% in 2023 and continue to increase in 2024 to 3.2%, according to the IMF. CPI is expected to decrease in 2023 to 10% after reaching 14.2% in 2022, due to global inflation in food and energy prices after Russia’s invasion in Ukraine. By 2024, CPI is forecasted to drop to 4%, according to the IMF. The central bank of North Macedonia has been rising interest rates to 6.3%, after the sudden increase in inflation. The European Bank for Reconstruction and Development and the World Bank will be backing North Macedonia with EUR 3 Bln to remove and replace the two coal power plants of the country with 1.7 gigawatts of renewable energy. The current account deficit has been projected to be at -3.3% of the total GDP in 2023 and remain at the same level in 2024. Sovereign non-payment and exchange transfer remain medium high. The domestic currency, the Macedonian Denar is pegged to the Euro at a rate of EUR 1 to MKD 61.3644. The risk of doing business and inability of government to provide fiscal stimulus remain medium, as banking sector vulnerability remains medium low. 

Russia (RUS)
Russia’s overall risk rating remains at medium-high. Political violence, legal and regulatory risks are at very high while political interference remains at medium-high as the war in Ukraine continues to cause a domestic strain. In addition to military issues, major challenges seem to have shifted to the economic side as the economy struggles. Macroeconomic instability continues to set the scene taking into account that current account surplus is shrinking, inflation spiking, ruble weakening compounded by the decline in energy earnings. In the midst of the ongoing economic turmoil, 2024 will be the election year for Russia as the country will choose its president in March 2024. Putin remains the strongest candidate according to various polls, and we think he is likely to win the elections. On the war front, we see a protracted conflict, coming with varying degrees of intensity into 2024 while the war will likely remain deadlocked in a frozen conflict, unless Donald Trump is elected U.S. President and threatens to curtail Ukraine funding. Although investor’s perceptions over the Russian economy is negatively affected by the ongoing war, sanctions and the economic developments, Russia continues to enjoy plenty of room to stimulate the economy via fiscal policy, given the low government debt/GDP trajectory. Additionally, the banking sector vulnerability remains medium-low and risk of doing business is at medium rating. Taking into account that the ongoing war between Israel and Hamas in Gaza could change the balances in the Middle East, where Russia is active, the war is likely to affect Russia’s role in the region.

Serbia (SRB)
Serbia’s overall risk score remains at medium when compared to previous risk analysis period, and there are no changes in any of risk levels in this reporting period. The political violence risk level is at medium, as is the risk for political interference, supply chain disruptions and sovereign non-payment posing medium risk, but the situation may change due to the tension with Kosovo, which quickly escalated in October 2023. Kosovo remains one of the top agenda items for the country, as the tension between ethnic Serbs and Kosovars continue to culminate in several violent incidents resulting in fatalities. Linked with this development, Serbia’s legal and regulatory risks remain at medium-high, while the risk of doing business is at medium low as the country ranks 44th in World Bank’s Ease of Doing Business List in 2022. Due to an unresolvable disagreement, it appears Serbia and Kosovo remain far from agreeing a long-term deal that would see Serbia recognize Kosovo’s independence. However, a minor agreement on car license plates in early 2024 seemed like a small step by the analysts. On the economic front, the economy expanded by 1.3% both in Q2 and Q3, after a moderate 0.1% growth in Q1. The fall in inflation remained strong in 2023 as the annual inflation rate eased to a nearly 2-year low of 8% in November 2023 from 8.5% in October. Additionally, banks vulnerability risk and the risk of inability of government to provide stimulus remain medium low, indicating relative strength of the economy despite political issues.   

Ukraine (UKR)
Ukraine’s overall risk rating remained high when compared to previous risk analysis period, and there are no changes in any of risk levels in this reporting period. Ukraine’s high risk rating comes from a very high risk in political violence; high risk rating in legal & regulatory risk, supply chain disruption and sovereign non-payment risk, while political interference and exchange transfers poses medium-high risk. The inability of government to provide stimulus remain at medium-high, particularly considering Western financial support remain questionable, both from the EU and the U.S. On the war front, the military confrontation is slower particularly in Ukraine's East and South due to winter conditions. We see a protracted conflict, coming with varying degrees of intensity into 2024 as the peace negotiations remain very unlikely since both Ukraine and Russia perceive the war as existential. As the U.S.’ attention has turned to Israel-Hamas conflict and the U.S. elections in 2024, the support to Ukraine from Western Block is now weakening. The conflict is coming to a deadlock, sustaining the overall risk rating of the country to be high. The war continues to devastate the country, with serious damage inflicted to the country’s infrastructure such as road, rail and energy networks, repairing it would necessitate plenty of time and extra funds. The country has also been under martial law since the beginning of the war, and this continues to be the case. Despite adverse impacts of the war, Ukraine's consumer price inflation fell to 12.9% in the January - December 2023 period. The risk of doing business in Ukraine is at medium-level while banking sector’s vulnerability is at medium-low.