EM Europe and CIS: Select Country Risk Ratings

Armenia (ARM)

Armenia’s overall risk remains medium high with Vahagn Khachaturyan remaining as President and Nikol Pashinyan as Prime Minister. Parliamentary elections are set for 2026. Political violence is high while political interference and legal & regulatory risk remain at a medium level. Tensions persist with Azerbaijan, who they have been fighting for decades over the dispute surrounding the Nagorno-Karabakh region which Azerbaijan seized in 2023. In March, officials from both sides said they had agreed the text of a peace agreement to end the conflict - but won’t be signed until Armenia change their constitution, which Azerbaijan say currently outlines its claim to the territory. The Prime Minister has called for a referendum on a new constitution to progress the peace process. However, in the meantime there have been multiple reports of ceasefire violations as the text remains unsigned. In April, the president signed into law a bill approved by parliament to move closer to EU accession as the country is moving closer to the West for support and further from traditional allies Russia. The IMF forecast 4.5% growth for this year and next. The impacts of conflict have been seen in the Armenian economy with private investment remaining low and issues of corruption, but structural reforms including to the tax and the justice system as well as closer ties with the EU make the risk of doing business medium low. Government debt to GDP is set to reach 54.5% of GDP this year with an anticipated rise to 56.2% in 2026. Armenia has significantly increased defence and security spending as well as support for refugees after the crisis caused by conflict. However, EU and IMF support loans have aided this and allowed for the fiscal position to remain stable. The inability of the government to provide fiscal stimulus is at a medium high level. Meanwhile a large current account deficit is forecast at -4.5% of GDP for 2025 and -4.8% of GDP for 2026. However, the Armenian dram continues to be stronger against the USD than in previous years while the central bank continues to ease its refinancing rate. This alongside boosts in domestic demand leads to the IMF expecting inflation to pick up again to 3.2% in 2025 after average prices only rose by 0.3% in 2024. Exchange transfer risk remains medium and banking sector vulnerability medium low.

Belarus (BLR)

Belarus’ overall risk score remains high. The political violence risk level is at medium-high while legal and regulatory risk stands at very high. In this rating period, supply chain disruption increased from medium-high to high due to ongoing war in Ukraine and worsened relations with the neighbours. The country held parliamentary and local elections in January 2025, and president Lukashenko received 87% of vote amid accusations the vote was neither free nor fair. Because of the allegations that the elections were not exercised freely due to political oppression, legal proceedings were initiated against researchers and journalists on charges of conspiracy to seize power. Consequently, a climate of heightened political tension remains in the country. In this respect, political interference, the risks of doing business and exchange transfers remain at medium-high. The Belarussian economy continues to be negatively impacted by the Ukraine-Russia war due to close ties with Russia. Price and wage volatility remain strong which can be attributed to international sanctions. The annual inflation rate in Belarus accelerated to 6.5% in April 2025, the highest since February 2023, due to elevated food and services prices. The National Bank of the Republic of Belarus (NBRB) is trying to reduce dollarization, for instance by increasing banks' mandatory reserves of foreign currency.  However, low confidence in the Belarusian ruble, failures in financial regulation and supervision, and high levels of political risk continue to impede such efforts causing sovereign non-payment risk rating at medium level. In this rating period, the inability of the government to provide stimulus increased from medium-high to high demonstrating weakening fiscal stance due to sanctions and adverse geopolitical events. Despite reliance on trade with Russia increase exposure to external shocks; strong trade, economic and investment cooperation between Belarus and China, which gained momentum after bilateral agreement on trade in services and investment was signed, continues to contribute to Belarussian economy.

Kazakhstan (KAZ)

Kazakhstan’s overall risk score remains medium-high. The political interference and legal and regulatory risks levels are at medium-high despite the political risk decreasing from medium-high to medium in this rating period. The country continues to be an autocratic state with socioeconomic discontent elevated due to high unemployment and corruption. Even though the country is appearing to distance itself from Russia due to the war in Ukraine, Kazakhstan’s continued trade and FDI interdependence to Russia means the economy is still exposed to movements in Russia, and global oil prices. When it comes to domestic politics, the strength of president Kassym-Jomart Tokayev continues despite significant concerns on the rule of law and women’s empowerment. Geopolitical uncertainties, sanctions over Russia economy and Ukraine war affect regional risk causing the risk of doing business to remain at medium level in Kazakhstan. In addition, the exchange transfer risk is at medium high. The underlying economy momentum is good, as the government tries to maintain growth momentum. Kazakhstan's economy expanded by 6% YoY in Q1 2025, primarily fuelled by growing transport and trade sectors. (Note: The World Bank projects country’s GDP growth at 4.7% in 2025, supported by increased oil production and fiscal stimulus). Kazakhstan recorded a FDI inflow of USD15.7 billion in 2024, marking an 88% increase over 2023. Despite political concerns, high corruption and adverse global developments, the banking sector vulnerability is at medium-low level. The banking sector has systemic deficiencies that ensure poor scores for corruption and state intervention, financial regulation and supervision. Elsewhere, sovereign non-payment risk remains at medium considering a fairly low public debt/GDP ratio (around 23% of GDP). Kazakhstan's large financing requirements, dependence on oil and other commodities and limited technological diffusion hampers the competitiveness of small enterprises, igniting economic vulnerabilities to stay strong.

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. Inflation remains elevated, labour is constrained 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 concerns on political oppression in the country causing political tension to surge. 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, and there are heightened transfer and convertibility risks. Inflation is the core macroeconomic problem as inflation ticked up to 10.2% YoY in April 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 huge 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. 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 the odds are 50/50 between a Russia-friendly deal in Ukraine (could ease some pressure on inflation and alleviate demand-supply imbalances in Russia) and the war continuing due to Putin stubbornness.

Serbia (SRB)

Serbia’s overall risk remains medium, with political violence risk also at medium. Aleksander Vucic remains President having won re-election in last December’s snap elections. However, Serbian students, who have been protesting since an awful train station accident in the northern city of Novi Sad in November, have called for early parliamentary elections to resolve the ongoing political crisis in Serbia.  So far Vucic has rejected these pressures, but the mass protests need to be monitored for any escalation in political violence.  Meanwhile, relations remain tense with Kosovo, despite last year’s EU and US mediated deal seeing Serbia informally recognising Kosovo as a state while Kosovo being able to provide some self-governance over areas of Serb majority in Kosovo. Kosovo in March also signed a defence agreement with Albania and Croatia that has angered Serbia.  Elsewhere, though Serbia is committed to joining the EU, it is under pressure by the EU to undertake more reforms.  Additionally, Serbia is keen to keep strong ties with Russia and China. This alongside the Kosovo situation will hold Serbia back in EU accession. According to the IMF, real GDP is set to grow by 2.7% in 2025 and 3.2% in 2026, reflecting reasonable economic conditions. Easing inflation at 4.0% for 2025 and 3.3% in 2026, back in line the National Bank of Serbia’s target and a rebound in the Serbian dinar, will underpin both private consumption and investment. Exchange transfer risk is at a medium low level, though the current account deficit is projected to remain too large at 5.7% of GDP in 2025. Government investment in infrastructure and in the renewables sector can also be attributed to a more positive economic outlook. This all keeps the risk of doing business medium low. In addition, a downward trajectory of government debt to GDP projected to be at 44% in 2025 by the IMF, makes the inability of the government to provide fiscal stimulus risk medium low. Supply chain disruption remains at a medium level.

Turkmenistan (TKM)

Overall risk in Turkmenistan remains high. Serdar Berdymukhamedov is President after taking over his father in 2022, who served as president since 2007. Political interference and legal & regulatory risk both remain very high as Turkmenistan remains an authoritarian state with the government’s monopoly of the media and state TV as well as continued repression of freedom of speech issues and food rationing. Relations remains closest with the likes of Russia, China and Iran in both an economic and political sense. The IMF forecast 2.3% growth in 2025 and 2026. The economy remains heavily reliant on oil and gas production with Turkmenistan estimated to have the fourth largest gas reserves in the world. Around 70% of exports go to China, highlighting their economic dependence and lack of diversification. However, they are aiming to diversify their export markets with deals with Iran and Turkey to set to boost demand for their gas exports into European markets. Meanwhile, Turkmenistan have been increasing infrastructure potential with pushes to expand gas pipelines further in Asia and the Trans-Caspian Gas Pipeline to Baku. The current account surplus will thus remain but is expected to decline hitting 2% of GDP in 2025 and 0.6% of GDP in 2026 due to falling oil and gas prices as well as risks to the economies of their big trading partners. Public infrastructure spending is being increased on roads, schools, health as well as on the development of Arkadag, Turkmenistan’s new smart city. However, the strong government foothold on projects is keeping any FDI restricted. Inflation does remain a concern for the economy with 7% inflation forecast by the IMF for 2025. Government debt to GDP will remain low, projected at 4.5% of the economy this year, all of which is denominated in foreign currencies. The country’s sovereign wealth stabilization fund, funded by oil and gas profits keeps public debt on a strong footing and helps protect the economy against the potential of future stocks. Thus, the inability of the government and sovereign non-payment risk both remain medium. Turkmenistan’s Manat currency remains pegged to the USD at 3.50 Manats to the USD. The risk of doing business remains very high with lack of diversification, corruption and weak infrastructure levels all remaining a concern, while supply chain disruption risk is medium high.

Ukraine (UKR)

Ukraine’s overall risk rating remains high. The high risk rating comes from very high risk ratings in political violence, in legal & regulatory, supply chain disruption and sovereign non-payment.  Meanwhile, political interference and exchange transfers posing medium-high risk, all closely linked with the ongoing war in Ukraine. 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 damages having already occurred on the country’s infrastructure. The country is still under martial law since the beginning of the war, which has been recently criticized by the U.S. president Trump. (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. Logistics and businesses are slowing economic activity, and elevating inflation. The annual inflation rate in Ukraine rose to 15.1% in April from 14.6% in March, an 11th consecutive increase to mark the largest inflation rate since May 2023. Despite economic constraints, the risk of doing business in Ukraine remains at medium-level and banking sector’s vulnerability is at medium-low showing the relative strength of the banking system. On the war front, 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. Under current circumstances, Russia will likely insist on annexing areas in and around four Ukrainian oblasts, and securing that Ukraine does not join NATO. Ukraine’s domestic politics and economy will be shaped by the outcome of peace negotiations which will likely take longer-than-expected, maybe years. Ukraine will then need many years to rebuild its war-torn economy, stabilize politically and strengthen militarily again.

Uzbekistan (UZB)

Overall risk in Uzbekistan remains medium high. Shavkat Mirziyoyev remains president as he has done since 2016, after being re-elected for another 7-year term in 2023 where he gained over 87% of the vote. Political interference is medium high, while legal & regulatory risk is very high. Corruption and limited opposition concerns continue as Miriziyoyez gained a greater majority in 2024’s parliamentary elections. President Mirziyoyez has gained support from reforms liberalising the economy while relations remain close with both Russia and China who continue to comfortably be Uzbekistan’s biggest trading partners. 5.9% growth is forecast by the IMF this year and 5.8% next. Uzbekistan is currently embarking on a 2030 National Development Strategy with the goal of becoming an upper-middle-income country by the close of the decade. Bold reforms, such as greater privatization in many keys sectors like renewable energy and infrastructure projects, have meant Uzbekistan have become one of the strongest growth performers among lower-middle income countries, boosting private investment. Notably, at the end of 2024, it was reported that ACWA Power had signed a deal and secured loans, including 690 million USD from the National Bank of Kuwait and 402 million USD from the International Finance Corporation, to fund solar projects in Uzbekistan. The risk of doing business is medium high. Inflation is set to remain elevated however, 8.8% is forecast by the IMF this year. Uzbekistan have raised tariffs on electricity to aim to improve efficiency and competitiveness domestically but this will continue to add to inflationary pressures. After a steep increase in 2023 due to the election year, budget deficits have remained more stable with -2.3% of GDP projected this year and next as the government aims to increase public spending on public services, notably education, whilst improving tax collection and winding back energy subsidies. The inability of the government to provide fiscal stimulus is at a medium level. Uzbekistan are big exporters of gold and cotton and other natural resources. The current account deficit remains significant however despite gold price rises with lower remittances from a slowing Russian economy and a weaker RUB in Russia as well as strong import growth seen in recent years as the economy has expanded. The deficit in the current account will be financed by FDI. Exchange transfer risk is now medium high.

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