EM Europe/CIS Country Risk Ratings
We provide country risk ratings for Russia, Ukraine, Turkey and other EM europe and CIS countries.
Albania
Albania has a medium overall risk. Political leadership is stable in Albania, with the Socialist Party of Albania retaining election for the third consecutive term in April 2021. The government are expected to serve its term in its entirety, with the next election in 2025. However, high food and energy prices stemming from its cost-of-living crisis (also leading to high levels of migration), incomplete judicial reform and struggles within the EU accession talks have made political violence a medium risk. Supply chain disruption is a medium risk, due to its undeveloped road and energy infrastructure worsening energy shortages that have led to regular power cuts. The Straits of Otranto offer access to the Italian market, offering a strong trade link. Albania’s low labour costs make its government more flexible in resolving supply chain issues, as well as making financial stimuli more effective. However, its current account deficit (-8% of GDP in 2022) makes the inability of the government to provide stimulus a medium risk. Sovereign non-payment is the risk of failure of a foreign government or government entity to honour its obligations in connection with loans or other financial commitments. The risk of sovereign non-payment is medium, due to high public debt/GDP, fiscal deficit, and current-account deficit. Exchange transfer is also a medium risk, Central Bank intervention and its tourism sector have supported the Albanian Lek’s appreciation since late-2022, recovering from its depreciation in reaction to the Ukraine war. Legal and regulatory risk is medium-high, with patronage networks, political influence and other forms of corruption hindering its economic sectors, judicial system, and its bid to join the EU. Risk of business is also strengthened by these factors. Along with its poor infrastructure, slow reform processes, and weak rule of law, these factors make risk of doing business a medium risk. Doing business is supported by its good international relations (especially if it joins the EU), low labour costs and potential in many industries such as mining and tourism.
Belarus
Belarus’ overall risk score remains high. The political violence risk level is at medium high, while legal and regulatory risks are high. Having impacted a lot from the war, the spill over of the Ukraine war on Belarus remains evident as the country continues to have close ties with Russia. On the military side the Wagner Group staged a rebellion in Russia on June 23 and Belarussian president Lukashenko was quick to play a key role in defusing Wagner militia’s mutiny against the Kremlin as Wagner forces marched towards Moscow and took control of military facilities in two Russian cities. Lukashenko intervened and brokered a deal under which Prigozhin would likely move to Belarus, and Wagner fighters either sign up to the Russian military, go to Belarus or return to their families. Russia-Ukraine war continues to affect Belarussian economy negatively. The economy is expected to grow by around 3.3 per cent in 2023, but the total economic burden over the country is also very high since around 2,000 companies have left Belarus after 2021, according to the Association of Belarusian Business Abroad. It appears the sanctions caused Belarus to be more attached to the Russia’s economy while the political interference and risk of doing business remain at medium-high, as the war in Ukraine continues to cause a domestic strain.
Bosnia and Herzegovina
Bosnia and Herzegovina has an overall risk at a medium-high level. The stability of its government looks to continue a steady path, with a new government formation happening in October 2022 and Bosnia and Herzegovina becoming an EU candidate in December. Bosnia and Herzegovina has a three-member body presidency, split into the areas of Bosniaks, Serbs, and Croats. Its tripartite presidency has facilitated increased polarising views over the war in Ukraine, ideas on autonomy, and other areas of politics. Disagreements within the presidency are always likely to cause unrest amongst some parts of the population. As a result, political violence is a medium-high risk. Banking sector vulnerability is a medium-low risk. The banking sector has so far proven resilient against the threats related to its country’s politics continuing to possess liquidity buffers and high capital, although more loans have been non-performing over 2022. Exchange transfer is the risk of being unable to make hard currency payments because of the imposition of local currency controls. Exchange transfer has worsened in risk to a medium-high level, due to increased imports in 2022 leading to a growing and large current-account deficit. This rating looks to remain stable, however, due to stable foreign-exchange reserves, slowing inflation. The pegging of the Bosnia-Herzegovina Convertible Marka to the Euro however if inflation remains more elevated than the Eurozone in future years. Sovereign non-payment is a medium risk. The ratio of public debt to GDP has fallen during the last quarter and meeting objectives remains likely, despite Bosnia and Herzegovina stacking up a large sum of debt through financing from international financial institutions. The inability of the government to provide stimulus has worsened to medium risk, due to its situation of dependence on external financing and imports meaning a number of structural, financial, and trade shifts that need to happen to enable the government to be effective in allocating its spending. Government effectiveness has already been put into question, by its continued lack of public investment doing little to help its low labour force participation, high youth unemployment and large informal economy situations. Legal and regulatory risks are high, due to corruption and defective rule of law. The rule of law is often hard to perfect with its presidential system. Corruption, including a lot of public procurement, represents a significant risk for this risk area.
Georgia
Georgia remains a medium-risk country. The ruling Georgian Dream (GD) party have received mass protest because of allegations that the government are attempting to remove democracy and to be taking Russian advice in its running. The government have also been accused of jailing opponents and censoring/silencing independent media, meaning its legal and regulatory risk is a medium risk. Corruption is also a significant issue in Georgia, mainly in high-level operations such as government. International human rights groups have claimed that the imprisonment of former-president Mr Saakashvili was politically motivated, demonstrating part of the troubling accusations pinned on the government. With these protests and strained relations between Georgia and Russia over the regions of Abkhazia and South Ossetia, political violence is a medium-high risk. A ‘foreign agents’ draft law has been dropped because of these protests, a law which would target non-government groups that take 20% of funding from abroad, with protestors identifying this as a Russian-style law. With a parliamentary election in 2024 and changing Russian situation, risk of violence is likely to worsen. Risk to financial stimulus is the risk of the government not being able to stimulate the economy due to a lack of fiscal credibility, declining reserves, high debt burden or government inefficiency. Georgia’s government’s inability to provide stimulus has improved in risk, becoming a medium-low risk. Even so, Georgia’s low-value exports, trade deficit, and high-level corruption all mean that funds for government spending are small. Banking sector vulnerability has also worsened to a medium-low level, due to already existing high dollarization in its banking system (61% of deposits and 56% of loans at the end of 2020) creating an increased risk of exchange rate volatility, where its exchange rate has been elevated since April. This exchange rate volatility stemming from dollarization also makes exchange transfer a medium-high risk. Risk of doing business is a medium-low risk, with corruption becoming more of an issue in higher-level realms of Georgia, abundance in mineral materials, and potential for hydroelectric, agriculture and tourism. Risks for business owners are exchange rates and poor protection of intellectual property rights.
Moldova
Moldova remains a high-risk country. An acute economic crisis has arisen from threats of the Russia-Ukraine war spilling over to Transnistria. Transnistria is a Russia-backed breakaway state, internationally recognised as Moldovan, where Moldova and the unrecognized state of Transnistria have fought since 1992. Political violence is therefore a very-high risk. Since the government reshuffle in February, governmental authorities are likely to concentrate on national security, potentially protecting against these heightened threats. The risk of doing business remains a medium risk, due to government corruption and a burdensome regulatory environment, where the risk of doing business relates to the regulatory obstacles to setting up and operating business in the country. Access to resources has also been restricted by the threat of war, with a Russian missile flying over Moldovan airspace in March reducing international business activity. Wizz Air has suspended its flights to Chisinau, the Moldovan capital, in reaction to this threat. Supply chain disruption risks remains due to violence involving its neighbours and being Europe’s poorest country restricts the government from making effective responses to disruptions, making it a medium-high risk. Legal and regulatory risk is high, due to the lack of transparency in government, public official’s impunity leading to corruption and a judicial system highly intertwined with political elites. The poor political and institutional quality when combined with falling fiscal balance and widening external financing requirements makes sovereign non-payment a medium risk, though supported by strengthening foreign-exchange reserves. Banking sector vulnerability is medium-low risk, owing to the banks' adequate liquidity and capital buffers. Although, non-performing loans are a banking issue that looks to worsen further this year. Inflation has been present in Moldova, although it is now falling, attempting to stabilise its very-high exchange transfer risk against the persistent and significant current-account deficit. With this current-account deficit and undiversified economy, the inability of the government to provide stimulus is a medium risk.
Russia
Russia’s overall risk rating remains at medium-high. Political violence is at very high rating; legal and regulatory risk at high and political interference at medium-high as the war in Ukraine continues to cause a domestic strain both for the public and the government. In addition to political issues, major challenges seem to have shifted to the military side recently as the Wagner Group staged a rebellion on June 23 after increasing tensions between the Russian Ministry of Defence and the leader of Wagner, Yevgeny Prigozhin. Despite President Vladimir Putin having announced on July 4 that the country is stable and united despite a brief mutiny, Russian economy continues to struggle after the mutiny. Russia’s ruble weakened in July to trade close above 90 per dollar. Ruble is now one of the worst performing emerging market currencies which lost 18% of its values merely this year. International sanctions due to Ukraine war, decline in energy earnings compounded by Wagner’s mutiny have caused the Russian currency volatility. President Vladimir Putin's grip on power is also being questioned, and it appears aforementioned issues have negative effects on the overall economy in addition to investor’s perceptions over the Russian economy. Despite Russia continues to enjoy plenty of room to stimulate via fiscal policy, given the low government debt/GDP trajectory, political and military-related developments may change the economic scenario quickly. On the war front, Russia’s and Ukraine’s spring offensives having failed to gain ground in eastern Ukraine causing stalemate but the chance of reaching a credible peace deal remain slim.
Serbia
Serbia’s overall risk score remains at medium. The political violence risk level is at medium, just like political interference, supply chain disruptions and sovereign non-payment posing medium risk, but the situation may quickly change due to the ongoing tension with Kosovo, which remains a top agenda item for the country. Serbia recently threatened a possible military intervention after tensions hiked between the ethnic Albanian-dominated government and the Serb minority living in northern Kosovo. President Vucic underscored on July 6 that recent arrests of Serbs in Kosovo to back his claim of ethnic cleansing by Kosovo authorities, which he described as well organized and planned. 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. The country’s economy is going through hard times as the inflation, which stood at 14.8% in May, stands out as a key macro challenge. In addition to hiking prices, households are squeezed by dropping real average salaries and growing interest rates and contracting credits. Despite some negative outlook, banks vulnerability risk remains medium low as the high level of interest rates have not caused a stress on the banks liabilities and liquidity conditions are stable.
Tajikistan
Tajikistan is a high-risk country. Political violence is a medium-high risk. The Taliban’s takeover of Afghanistan in August 2021 threatens violence in Tajikistan as it shares a 1,357km border, making terrorism an increased threat. President Emomali Rahmon may increasingly become a target of protest due to the widespread poverty, unemployment, austerity, power shortages and political oppression, which have all produced social unrest. Tajikistan is part of China’s Belt and Road Initiative (BRI), an initiative to connect Asia with Western Africa and Europe, developing land and maritime networks for increased trade, economic growth, and regional integration. The BRI looks to improve supply chains, improving those used by Tajikistan, potentially lowering its medium-high risk of supply chain disruption. The BRI developments will also look to improve trade over the already popular transit corridor between Uzbekistan, Kyrgyzstan, Afghanistan, Pakistan, and China. It is landlocked, 90% mountainous, highly vulnerable to climate conditions, restricted by its border with Taliban ran Afghanistan, and weak infrastructure, presenting its supply chain risks. Prior to BRI developments, key areas of infrastructure weakness have been transportation, healthcare, energy and water. Banking sector vulnerability is the risk of the country’s domestic banking sector facing a crisis or not being able to support economic growth with adequate credit. Tajikistan’s banking sector vulnerability has fallen to a medium-low level, where banking stability is widely supported by multilateral and bilateral donors (including China). Despite its dependence on raw materials and low level of economic diversification, its young population being presented with great potential in natural resources, agriculture and tourism, promises to keep Tajikistan’s population economically active and increase banking sector interaction. However, the banking sector’s concentration and perceived fragility may offer continued threats. Legal and regulatory risk remains a very-high risk, owing to the prevalence of organised crime, politicisation of the judiciary, and corruption. The risk of doing business is also made a medium-high risk, due to Tajikistan’s patronage and bribery culture offering obstacles to running business. Its private sector also receives a low level of importance and investment, restricting the potential for foreign direct investment (FDI). The political risk stemming from this neglect of the private sector and instability owed to threats of violence, make political interference a high risk. The poor governance previously explain also serves as a significant risk for political interference.
Turkiye
Turkiye overall risk remains at medium. Politics is not the first item in the country’s agenda anymore as presidential elections are now over with another Erdogan win. President Erdogan’s victory on May 28 election did not lead to a persistent increase in political violence (currently medium-low) nor lasting constitutional problems (legal and regulatory risk are at medium). Despite relative political stability, Turkish economy continues to struggle due to high inflation and depreciating currency. Turkiye has received help by a government debt/GDP trajectory which is at manageable levels, but recent increases in minimum wage, and total cost of the currency protected deposits (KKM) pose trouble for Turkish economy. Although, markets were concerned that re-election of President Erdogan and the AKP party could mean continuation of unorthodox policies (including very negative real interest rates and less progress in getting inflation down), the appointment of Mehmet Simsek as the new treasury and finance minister and Simsek’s signalling to a hesitant return to conventional orthodox economic policies partly relieved the markets. In line with this, on June 22, Central Bank of Turkiye hiked policy rate from 8.5% to 15% in the first monetary policy committee meeting after the elections, and hinted further monetary tightening to cool down the economy and squeeze inflation lower. Despite this, the risk of doing business in Turkiye remains at medium as political interference continues to be a medium level risk concern.
Ukraine
Ukraine’s overall risk rating remains high. The high risk rating comes from a very high risk rating in political violence; high risk rating in legal ®ulatory risk and supply chain disruption; and political interference, sovereign non-payment and exchange transfers posing medium high risk. The clear path towards a credible peace deal remains slim, triggering the overall risk rating to be high. The ongoing war continues to devastate the country, with serious damage already occurred on the country’s infrastructure such as road, rail and energy networks, which would necessitate plenty of time and extra funds to repair. The stationing of battlefield nuclear devices in Belarus continues to cause concerns. Ukraine’s president Zelensky stated on July 5 that he had wanted to start the military push sooner, signalling the war on the battlefield can go worse. Military analysts predict more than 100,000 people, including civilians, have been killed and over 300,000 more injured as the end of June, showing the dark side of this humanitarian catastrophe. The country has also been under martial law since the beginning of the war, and this continues to be the case. The country’s economy has been severely affected by the war, as IMF estimates Ukraine’s GDP to decline by 3% in 2023, and projected consumer prices is 21.1% in 2023. The risk of doing business in Ukraine remains at medium while the inability of the government to provide stimulus continues to be a medium-level risk concern. The war’s adverse impacts continues to shape the economic and political stance of the country.