EM Europe and CIS: Select Country Risk Ratings

Armenia (ARM)

Armenia’s overall risk score remains medium-high. The political interference and legal and regulatory risks levels are at medium, while political violence remains high in this rating period, since the discontent against the current government is high. The failed coup attempt that took place on June 25 has brought the territorial conflict with Azerbaijan over the Nagorno-Karabakh region back into the spotlight. After Armenian Prime Minister Nikol Pashinyan accused Archbishop Bagrat Galstanyan, a prominent figure in the Armenian Apostolic Church and opponent of the government, was involved in the coup attempt, archbishop Galstanyan was arrested for the coup attempt, which deepened the domestic political crisis. Despite geopolitical uncertainties, tensions with Azerbaijan, sanctions over Russian economy and Ukraine war affected regional risk, the risk of doing business and banking sector vulnerability remain medium low level in Armenia, underscoring the relative strength of the Armenian economy. The underlying economic momentum is not bad, as the government tries to maintain growth. The annual inflation rate in Armenia slowed to 3.4% yr/yr in July 2025 from 3.9% yr/yr in the previous month. Armenia's economy expanded by a strong 5.9% yr/yr in Q2 2025. Despite this, political issues continued to strain the economy as the sovereign non-payment risk increased from medium to medium-high in this rating period, while the inability of the government to provide stimulus stood at medium high. More importantly, the dispute between Azerbaijan and Armenia seems partly solved after Azerbaijan and Armenia signed the peace deal at the White House on August 8 in a deal brokered by the U.S., which will likely decelerate political tensions, helping the domestic economy to strengthen in the near term. Despite Armenia’s financing requirements, and limited technological diffusion hampers the competitiveness of small enterprises, this could be partly solved if regional political tensions, particularly with Turkiye and Azerbaijan could be lowered. Additionally, we think Armenia wants to move closer to Europe politically and economically – but the path to achieving this is controversial since ties with Russia is still strong.

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. The country’s president, Ilham Aliyev secured his fifth term and another seven years in office after the elections in 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 solved for now after Azerbaijan and Armenia signed a peace deal at the White House on August 8 in a deal brokered by the U.S. The deal included an agreement that will create a major transit corridor linking Azerbaijan to its exclave of Nakhchivan (Zangezur) with the U.S. owning development rights to the corridor, which is named the Trump Route for International Peace and Prosperity. We believe the peace deal will help decrease the political and economic risks in the country. (Note: Separate from the joint agreement, Armenia and Azerbaijan signed deals with the U.S. meant to bolster cooperation in energy, technology and the economy). 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 decreased to 5% in July from 6.0% in June, while the country recorded a trade surplus of around USD2.4 billion in Q1 2025, and economy grew by 0.9% yr/yr in H1. 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, we feel Azerbaijan's economy heavily relies on oil and gas exports, and it appears any fluctuations in global energy prices can impact economic performance. Minimal diversification of the economy dependent on oil and gas revenue continues to weigh on growth.

Russia (RUS)

Russia’s overall risk rating remains medium-high when compared to the previous risk analysis period. The war in Ukraine continues to dominate domestic politics and economy. Inflation remains elevated, labour is constrained and investment levels are low due to a weak business climate, as sanctions continue to hamper foreign investments and economic confidence. The overall environment for doing business in and with Russia remains unfavourable. Political violence is at a very high rating and political interference risk is high due to concerns regarding political oppression in the country. 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, creating an increasing financial burden, given high military spending and fiscal support. When it comes to domestic economy, inflationary pressures remain elevated, and there are heightened transfer and convertibility risks. Inflation is the core macroeconomic problem as consumer price inflation ticked up to 8.8% yr/yr in July due to higher non-food and services prices, remaining well above the Central Bank of Russia’s (CBR) midterm target of 4%. Despite macroeconomic problems and investors’ negative perceptions, Russia's overall public debt burden remains moderate. Russia's GDP expanded by 1.1% yr/yr in Q2, the slowest pace of growth since the economy resumed expansion in Q2 2023. CBR’s previous monetary tightening to fight against stubbornly high inflation continues to hamper economic growth prospects in 2025, while sanctions, supply side constraints and price pressures also remain restrictive. Despite economic problems, 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 this rating period, the inability of the government to provide stimulus decreased from medium to medium-low level, showing that financial constraints are partly relieved. We consider that the war in Ukraine will continue to be the key determinant for Russian economy and politics. Current situation signals a prolonged negotiation process taking months for sealing a full-scale peace deal since ensuring and finalizing concessions will take more time than U.S. president Trump hopes for.

Turkiye (TUR)

Turkiye’s overall risk level is high. The political violence in the country remains very high, particularly after Istanbul mayor and opposition’s presidential candidate, Ekrem Imamoglu was arrested in late March due to fraud allegations, which was followed by nationwide protests against the Justice and Development Party (AKP) government. In addition to Imamoglu, a number of CHP officials and mayors have faced waves of arrests this year due to allegations involving organized crime, bribery and bid-rigging. The mayors of two major cities in southern Turkiye (Adana and Antalya) were arrested on July 5, joining a growing list of opposition figures detained. Because of growing tensions, political interference remains at a medium-high level, while legal & regulatory risk also stands at medium-high. In addition to domestic political issues, the accession negotiations between the European Union (EU) and Turkiye remain halted as the European Parliament maintained a block on restarting Turkey accession talks on May 7. On the economic front, despite the Turkish Lira falling significantly after Imamoglu’s arrest- which risked the ongoing disinflationary process and added uncertainty to fragile investment, there have been some recent signs of economic recovery. For instance, the banking sector vulnerability is currently at medium-low level, showing the relative strength of the banking system supported by Turkiye’s removal from the Financial Action Task Force (FATF) gray, list which was a remarkable development for the Turkish financial sector – though the banking sector is still exposed to Turkiye's heavily indebted private sector. The risk of doing business stands at a medium level due to concerns over law enforcement and political oppression. In this rating period, both the inability of government to provide stimulus and sovereign non-payment risks decreased from medium-high to medium level, demonstrating that the economy is recuperating and financial constraints are partly relieved.  Remaining the core economic problem, inflation hit 33.5% y/y in July, which will likely require the central bank to maintain a tight stance for a longer period than expected. We think there are still low foreign-exchange reserves relative to external short-term debt, while a large gross external financing requirement and vulnerability to external shocks exist. The supply chain disruption risk remains at a high level as the country’s trade and manufacturing struggle due to the conflicts in Syria and Ukraine.

Ukraine (UKR)

Ukraine’s overall risk rating remains high. The high risk rating originates from very high risk ratings in political violence; and high risks in legal & regulatory, supply chain disruption and sovereign non-payment. Meanwhile, political interference and exchange transfers are posing medium-high and high risks, respectively, closely linked with the ongoing war in Ukraine. The inability of the government to provide stimulus stays high, demonstrating a serious financial bottleneck and economic stress. The war’s adverse impacts continue to shape the economic and political stance of the country since the war devastated the country, with serious damage having already occurred on the country’s infrastructure. The country is still under martial law since the beginning of the war, which has been criticized by the U.S. president Trump during his gathering with president Zelenskyy on August 15. (Note: The presidential election in Ukraine was supposed to be held in 2024, but no elections were held due to martial law). The political and economic outlooks remain exceptionally uncertain due to massive human and economic damage, coupled with labour shortages and Russia’s attacks on energy supply. Logistical and manufacturing problems are slowing economic activity, elevating inflation and causing the risk of doing business to stand at medium-level. Despite constraints, the banking sector’s vulnerability is at medium-low, highlighting the relative strength of the banking system. On the war end, it appears a full-scale peace deal satisfying all parties will be hard to achieve without Ukraine abandoning hopes of returning to its pre-war borders and joining NATO. Under current circumstances, we foresee Russia will likely annex areas in and around four Ukrainian oblasts (maybe giving up some land in Zaporizhzhia and Kherson regions to Ukraine), and secure that Ukraine does not join NATO. Ukraine’s domestic politics and economy will be shaped by the outcome of peace negotiations, and the country will then need many years to rebuild its war-torn economy, stabilize politically and strengthen militarily again.