EM Europe and CIS: Select Country Risk Ratings

Azerbaijan (AZE)

Azerbaijan’s overall risk score is at medium-high level. The political violence risk and legal & regulatory risk stand at high, while political interference risk remains at medium-high in this rating period as Azerbaijan’s economy continues to be strained by structural deficiencies and corruption. On the political front, the country’s president Ilham Aliyev secured his fifth term and another seven years in office after the elections last February as his popularity in the society was bolstered following the success of capturing Nagorny Karabakh from Armenia. The dispute between Azerbaijan and Armenia remains a local issue and seems partly solved for now, causing no further risks over the political and economic outlook. On the other hand, Zangezur Corridor, which is a pro-Turkic trade route between Azerbaijan and Turkiye, can be the new focus which can affect Azerbaijan-Armenia relations. The economic momentum in Azerbaijan is promising as the government maintains growth momentum supported by growing FDI and surging government spending. On the economic front, the annual inflation rate increased to 5.4% in January from 4.9% in December, while the country recorded a trade surplus of around USD2.4 billion in Q3 of 2024. Backed by the positive economic environment and stable domestic politics, the risk of doing business remains at medium and the exchange transfers risk is at medium-low. Additionally, the medium-low banking sector vulnerability rating demonstrates relative stability of the financial sector. Despite positive developments, Azerbaijan's economy heavily relies on oil and gas exports, and it appears any fluctuations in global energy prices can dramatically impact economic performance. Minimal diversification of the economy sustained by oil and gas revenue continue to weigh on growth. The government continues to adopt a number of strategies to diversify the economy and strengthen the non-oil sectors, and this will be key for the Azerbaijani economy in the near future.

Kyrgyz Republic (KGZ)

Kyrgyzstan’s overall risk remains high. Sadyr Japarov continues to assume the role as President with a strong parliamentary majority, leading a regime many believe to have become authoritarian with continued strong links to Russia. The next presidential elections are set for 2026 and parliamentary elections 2027. Political interference remains medium high and legal & regulatory risk very high. Falling living standards and divisions in Kyrgyzstan have provided for political instability with numerous attempts to overthrow the president in recent decades. December saw president Japarov change his Prime Minister to Adylbek Kasymaliyez from Akylbeck Japeror after being dismissed in a ‘transfer to another position’. As a former Soviet Republic, ties with Moscow remain strong. A Russia-like foreign agent law exists as well as other similar types of legislation. Kyrgyzstan remains in the Eurasian Economic Union with 5 post-soviet states and companies who are led to believed be aiding Russia’s war effort and are suffering from sanctions imposed by the US. Meanwhile, economic relations with China are getting closer through investments into the economy, defence support and through being their biggest trading partner. The risk of doing business remains medium high. Economic growth is expected to stall with 5% expected in 2025 and 4.1% for 2026. Remittances from locals working in Russia remain strong but sanctions are damaging confidence and exports. Construction and services are supporting growth alongside the agricultural sector which employs around 40% of the workforce. 5% inflation is forecast by the IMF for 2025 and 2026 with food prices coming under more control benefitting households. A decreasing yet still high current account deficit of -6.5% of GDP for 2025 is forecast down from -21.7% of GDP in 2024, due to remittances strengths and a boost in exports expected. Government debt to GDP is expected to fall from recent years and hit 41.2% in 2025 with greater tax revenue and cuts to capital expenditure which was 3.2% last year, according to the World Bank. The Kyrgyzstani Som has weakened slightly against the USD in recent months since the US election. Exchange transfer risk is medium high and sovereign non-payment risk medium.

Moldova (MDA)

Moldova’s overall risk remains high. November 2024 saw Maia Sandu re-elected as President defeating Russia backed opposition candidate Alexandr Stoianoglo in the second round of voting. Since Russia’s invasion of Ukraine in 2022, President Sandu has accused Russia of interfering too much in Moldovan politics and Sandu’s national security adviser accused Russia of interfering in the election process, a week after the uproar in neighbouring Georgia after their elections sparked controversy in late 2024. Alongside the presidential elections, Moldovans also went to the polls on a vote to decide a change to their constitution in making a commitment towards preparing for EU accession. A vote decided by the narrowest of margins with 50.46% of Moldovans deciding for EU accession. Since, the start of the war in Ukraine, the US and EU have sanctioned Moldovan politicians who they believe to have made efforts to collude with Moscow. Political violence is very high and legal & regulatory risk is high. Moldova remains one of the poorest economies in Europe, continuing to rely on the agricultural sector. The IMF anticipate a 3.7% increase in real GDP in 2025 and 4.4% in 2026, reflecting resilience in the face of the consequences of war in bordering Ukraine and more of a positive sentiment since 2024’s vote. In addition, investment is set to be boosted once again with the National Development Programme helping to improve energy and transport infrastructure and extend the plan to connect Moldova’s electricity system to Romania’s. This is aided by the extension of the 373 programme by the government allowing firms to borrow at lower rates to boost investment in the economy. As well as this, the inability of the government to provide fiscal stimulus remains medium. Inflation is set to remain at 5% this year and next, boosting sentiment after the energy crisis caused inflation to reach 28.6% in 2022. However, there remains focus on the issue of inflation in the Moldovan economy after the National Bank of Moldova hiked their policy rate by 200bps in January to 5.6% with increased inflationary expectations due to increased tariffs on energy likely to increase costs of production, the bank signalled. Moldova is particularly reliant on energy imports therefore making them more vulnerable to commodity fluctuations and feel the spill over of these tariffs. This making the IMF estimate a weak current account position estimating a deficit of -10.7% of GDP in 2025, a problem worsened by low external demand for exports from European partners. The National Bank have also switched to the EUR as the reference currency for the Moldovan lei’s official exchange rate from the USD boosting EU ties. Exchange transfer risk does though remain very high. Furthermore, the increasing threat of climate change such as droughts seen are adding pressure to their dominant agricultural sector. Supply chain disruption is at a medium high level and the risk of doing business medium.

Russia (RUS)

Russia’s overall risk rating remains medium-high when compared to previous risk analysis period with no changes in any of risk levels in this reporting period, as the war in Ukraine continues to dominate both domestic politics and economy. The rouble remains volatile, inflation remains elevated and investment levels are low because of weak business climate since sanctions continue to hamper foreign investment. The overall environment for doing business in and with Russia remains unfavourable. Political violence is at very high rating and political interference risk is high due to alleged concerns on political oppression in the country causing political tension to increase. The legal and regulatory risk remains high, and sovereign non-payment risk is medium-high as the war continues to cause a domestic strain creating an increasing financial burden due to high military spending and fiscal support. On the economic front, inflationary pressures remain elevated, inflation expectations worsen, and there are heightened transfer and convertibility risks. Inflation is the core macroeconomic problem as the inflation ticked up to 9.9% YoY in January after hitting 9.5% in December, remaining well above the Central Bank of Russia’s (CBR) midterm target of 4%, due to surges in services and food prices. Despite macroeconomic problems and investors’ negative perceptions, Russia's overall public debt burden remains moderate. Russia's GDP expanded by a strong 4.1% YoY in 2024 driven by elevated military spending, higher wages and fiscal stimulus.  Additionally, banking sector vulnerability is at medium-low as banks have remained profitable taking into account that the government continues to support large banks despite non-performing loans increasing in nominal terms. Given acute risks, it seems inflationary pressures won’t easily soften unless the Ukraine war comes to an end. The war remains a key determinant for Russian economy and politics, and we foresee a Russia-friendly deal in Ukraine in 2025 under current circumstances, which can help domestic economy to recuperate.

Tajikistan (TJK)

Tajikistan’s overall risk remains high. Enomali Rahmon remains president as he has done since 1994. His rule remains very authoritarian and controlling, thus political interference continues to be high and legal & regulatory risk very high. Legislative elections are set for March 2025 and the next set of presidential elections set for 2027, in the face of persistent corruption at government level. In terms of foreign relations, despite being historically aligned with Russia, Tajikistan relations with Moscow have become frosty. Last year, a top Russian security official claimed Ukraine were utilising Tajik mercenaries in their fight against Russia, to which Tajikistan rejected. Furthermore, Moscow is stepping up efforts to curb Tajik migrants after the attack on a concert hall by Tajik militants killed 145 people in 2024. Financial relations remain stronger with China, however tensions with Kyrgyzstan over the border remain. According to the IMF, real GDP will grow by 4.5% in 2025 and 2026. Growth will be supported by the continued strength in remittances from expats from Russia (around a third of GDP) as well as exports from mining products and natural resources. A -1.7% of GDP current account deficit is estimated by the IMF for 2025. In addition, the Rogun Dam Megaproject secured USD550 million in external financing from the likes of the Islamic Development Bank last year. The Rogun Dam aims to secure better energy security across the nation by becoming the world’s tallest dam. However, the government have made clear they will still require USD6.2 billion to complete the project. The IMF anticipate a growing inflation risk going into 2025 and 2026 with 5.9% and 6.5% inflation projected for the next two years respectively. The budget deficit is expected to remain at -2.5% of GDP for the next 2 years with higher capital expenditure going towards the Rogun hydroelectric project and infrastructure projects, but growth and inflation is set to reduce the public debt to GDP ratio. Thus, government debt to GDP is forecast at 30.1% of GDP for 2025 and 29.3% of GDP for 2026 and the inability of the government to provide fiscal stimulus is now medium low. Tajikistan remains susceptible to the emerging climate risk mainly due to their geography with over half of the country lying above 3000 metres of elevation.  They are particularly vulnerable to floods, earthquakes and drought. Alongside this risk, the economy remains undiversified and reliant on remittances thus the supply chain disruption risk remains medium high and the risk of doing business medium high.

Ukraine (UKR)

Ukraine’s overall risk rating remains high. The high risk rating comes from a very high risk rating in political violence, in legal & regulatory, supply chain disruption and sovereign non-payment; while political interference and exchange transfers posing medium-high risk, all closely linked with the ongoing war in Ukraine. When compared with the previous risk analysis period, the inability of government to provide stimulus remains high, demonstrating financial bottleneck and economic stress. The war’s adverse impacts continue to shape the economic and political stance of the country since the war continues to devastate the country with serious damage already occurred on the country’s infrastructure such as road, rail and energy networks. The country is still under martial law since the beginning of the war, which is recently criticized by the U.S. president Trump. (Note: Despite the presidential election in Ukraine was supposed to be held in 2024, no elections were held due to martial law). Ignited by the adverse impacts of the war, the annual inflation rate in Ukraine increased to 12.9% YoY in January from 12% YoY in December, the highest reading after May 2023. 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 economic problems. On the war front, all parties seem to be eager to end the war, but it appears the peace process could be long and complicated for Ukraine. Russia and the U.S. have already started negotiations despite the fact that Ukraine is excluded from the talks, opposed by president Zelenskyy. U.S. Defence Secretary Hegseth gave some significant signals on what will likely happen next in Ukraine during his speech to NATO leaders on February 12. Hegseth indicated that NATO membership for Ukraine is unrealistic, and the country should abandon hopes of returning to its pre-2014 borders and prepare for a negotiated settlement with no peacekeeping U.S. troops being deployed to Ukraine. Under current circumstances, a ceasefire followed by a Russia-friendly peace deal is highly probable in 2025 while Russia will likely continue to annex areas in and around four Ukrainian oblasts, and secure that Ukraine does not join NATO. Domestic politics and economy will be shaped by the outcome of negotiations. Ukraine will need many years to rebuild its war-torn economy, stabilize politically and strengthen militarily again.

Please refer to the following link (here) to access our full Country Insight Scores.