EM Europe and CIS: Select Country Risk Ratings

Azerbaijan (AZE)

Azerbaijan remains medium-high overall, despite further progress in reducing tensions with Armenia. Political violence and legal & regulatory risk are rated high, while political interference is medium-high. President Ilham Aliyev retains dominant control over the political system, with limited opposition space, weak judicial independence and significant state influence over major sectors. The most important positive development is the continued improvement in relations with Armenia. By July, both governments were describing the peace process as substantive, with direct trade and political contacts resuming and work progressing on transport links. However, Azerbaijan continues to demand constitutional changes in Armenia before a final peace treaty is fully implemented, and unresolved border or domestic political issues could still create setbacks. Political violence remains high despite the reduction in direct interstate fighting.

The IMF expects GDP growth of 2.2% in 2026. Hydrocarbon output is likely to contract, while the non-oil economy is projected to expand by around 3.7%. Higher oil and gas prices generated by the Middle East conflict improve export receipts and the current account, while Azerbaijan’s combined foreign-exchange and sovereign-wealth assets provide a very large external buffer. Inflation is expected to average around 6% in 2026, reflecting imported price pressure and domestic demand. Supply-chain disruption and the risk of doing business are rated medium. The country is investing heavily in its role as a transit corridor between Central Asia, the Caucasus and Europe, including the U.S.-supported transport corridor linked to Armenia, but state dominance and regulatory opacity remain obstacles for private firms. Sovereign non-payment risk is medium, exchange transfer risk is medium-low, banking-sector vulnerability is medium-low and the government’s inability to provide stimulus is medium-low. Public debt is modest and the State Oil Fund provides substantial fiscal capacity. The key longer-term weakness is economic concentration: declining mature oil production and dependence on hydrocarbons make diversification essential. Peace with Armenia and greater regional connectivity could materially reduce risk, but institutional reform and a broader private sector will be necessary for a sustained improvement.

Russia (RUS)

Russia’s overall risk rating remains medium-high. The war in Ukraine continues to be the primary determinant of Russia's political and economic trajectory. President Putin is trying to intimidate European countries to give less support to Ukraine, as the Ukraine conflict remains in deadlock and Ukraine is having more success in hitting targets in Russia. This could mean an escalation of tension with some European countries; more stray missiles into eastern European countries and threats to use tactical nuclear weapons. However, Putin also knows that Trump could be replaced by a less friendly U.S. president in early 2029 and will likely try over the autumn and winter to engineer new peace talks over Ukraine on Russian terms. Russian banks are also seeing noticeable depositor withdrawals over fears that deposits will be nationalised for Ukraine war funding, while Russian casualties mean that Putin is under pressure to consider a 2nd general mobilisation that would be deeply unpopular in Russia. All of this means the political violence rating remains at a very high rating. Political Interference remains high and the legal & regulatory risk stands at very high, as the Kremlin allegedly enforces strict control over domestic media and suppresses political opposition. Meanwhile, the risk of doing business remains at a medium level hampered by a labour shortage and a weak investment climate. The Russian economic landscape is mixed. Inflationary pressures are subsiding, while economic momentum has slowed with GDP growth turning negative in Q1. The IMF is projecting 1.1% GDP growth in 2026, as the private sector is squeezed by the war and this is also causing some disinflation with inflation projected to slow to 5.6% in 2026 by the IMF. The inability of the government to provide a stimulus generates a medium level risk, reflecting a large budget deficit but still a modest government debt/GDP. The IMF project a general government debt/GDP at 19.1% of GDP. Banking sector vulnerability is medium-low as banks remain profitable and supported by the state, though they face rising non-performing loans and high borrowing costs for the private sector.

Turkiye (TUR)

Turkiye’s overall risk level is high. Political violence and interference remain at a very high and medium-high level respectively. Following the judicial mandate seeking a 2,400-year sentence for opposition presidential candidate Ekrem Imamoglu, opposition support has moved elsewhere and some are following the fortunes of Ozguer Ozel of Yeni. President Erdogan continues to want to dominate Turkish politics however and is using the international stage to project statesmanship. The Pakistan-Saudi Arabia-Turkiye joint defence pact agreement and Erdogan’s friendship with U.S. president Trump are being used to underpin domestic support. Legal & regulatory risk remains at a medium-high level as the judiciary are alleged to be increasingly used as a tool for opposition political control. Linked with this, doing business remains at a medium risk level due to concerns over domestic politics. The Turkish economy has been able to weather the high energy prices caused by the Iran war and the IMF projects 2026 GDP growth at 3.4%. Meanwhile, inflation is forecast to slow to 28.6% in 2026, with some lagged disinflation from tight monetary policy but still some stickiness related to reasonable domestic demand. This domestic demand also is sustaining imports and leaves the current account deficit at around 2.8% in 2026. Thus despite the pick-up in FX reserves over the last few months, the Turkish Lira maintains some vulnerability should politics or the economy deteriorate. One economic issue to watch is whether President Erdogan decides on an early presidential election in October 2027 and seeks politically motivated interest rate cuts from the CBRT next year. Meanwhile, supply chain disruptions persist at an elevated level, driven in part by regional conflicts and disputes. Finally, sovereign non-payment risk and fiscal stimulus inability have stabilized at a medium level reflecting a disciplined fiscal consolidation.

Ukraine (UKR)

Ukraine’s overall risk remains high mainly due to the ongoing war, with a very high risk rating for political violence. On the war front, Ukraine is having success hitting medium- to long-range targets in Russia, but a lack of U.S. anti-missile defence is seeing more damage in Ukraine. On the battlefield the deadlock is expected to continue into the autumn and winter. Meanwhile, a comprehensive peace settlement acceptable to all sides remains unlikely in 2026 as Russia maintains its initial hard-line demands, Washington's primary focus has shifted toward the war in Iran and Ukraine would have to make territorial concessions and abandon its NATO ambitions. However, with deadlock on the battlefield, plus the risk of a less friendly U.S. president in 2029, Putin could soften the negotiating stance in 2027. Meanwhile, domestic political pressure to hold wartime elections has been voiced by Ukraine’s ex-defence minister. Additionally, Volodymyr Zelenskyy has come under pressure over a number of corruption allegations against top allies. Despite the political opposition remains broadly aligned on the war effort, political interference remains at medium-high level. Logistical and manufacturing problems linked with supply chain disruptions continue to restrain economic activity, which has caused the risk of doing business to remain at a medium-level. The IMF forecast inflation at 6.1% in 2026, but remaining elevated in 2027 at 7.7%. Though the economy contracted by 0.5% y/y in Q1, the IMF still projects reasonable growth for 2026 of 2.0% due to the war and support from European funding. Finally, because of surging public debt, the government’s capacity to implement economic stimulus remains heavily restricted.

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