Index trend
Previous Quarterly Editions
Expropriation Risk: 65 68 68 83 ▲Political Violence Risk:85 90 90 90 ►Terrorism Risk:24 24 24 24 ►Exchange Transfer and Trade Sanction Risk: 73 64 64 45 ▼Sovereign Default Risk:74 92 92 92 ►
Overall Risk Temperature: 78 (High -1) TREND ►
Special topic: Relationship with the 'global rules-based order'
Ukraine is a staunch advocate of the global rules-based order or liberal international order. It has a particular interest in maintaining this order, as it has suffered from direct aggression by a foreign country — the Russian full-scale invasion in February 2022 and the ensuing all-out war on Ukrainian territory. With no resolution in sight for the Russian aggression, Ukraine's survival as an independent state relies on the preservation of the international order.
Perhaps more than ever since the 2022 invasion, Ukraine requires further support from the international community. The war is dragging on without any clear indication of when it might end. The Gaza war has distracted Western capitals, and Ukraine fatigue has been growing. Military support from the U.S. has stalled. Uncertainty over the fate of the latest aid package from the U.S. exacerbates the situation for Ukraine.
As part of efforts to end the war, Ukrainian President Volodymyr Zelensky in May 2023 proposed a “peace formula.” The formula contains 10 points, including the restoration of Ukraine’s territorial integrity, the withdrawal of Russian troops, an international tribunal for those responsible for the invasion and an international mechanism of compensation for Russian-inflicted losses. Ukraine also wants security guarantees and nuclear safety (meaning restored security around the Russian-occupied Zaporizhzhia nuclear power plant). Implementation of these points would be impossible in the absence of the global rules-based order.
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Due to the war, the risk of expropriation is relatively high, although it mostly involves the nationalization of assets owned by the Russian state and its citizens. In late January, Ukraine’s Supreme Court recognized that the state owns the Ukrainian part of the Samara-westbound oil pipeline (the “Medvedchuk pipe”). For many years since independence, this part of the Soviet-built pipeline had been used by the Russian company Transneftprodukt before Kyiv began a decade-long fight in courts to bring the asset under state control.
That said, not every move to nationalize Russian assets has resulted in a clear and favorable legal outcome for the government. Also in late January, the Ukrainian High Anti-Corruption Court rejected a lawsuit filed by the Justice Ministry in October 2023 to recover assets from Alyans Holding. This company runs the local network of petrol stations under the Shell logo and belongs to European Union- and Ukraine-sanctioned Russian businessman Eduard Hudainatov. The Justice Ministry plans to appeal the verdict.
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As earlier in the war, the risk of political violence is very low. Mass gatherings and protests are forbidden under the martial law introduced immediately after the Russian invasion, which has since been extended every three months.
Besides, there is a self-imposed wartime unity within the domestic polity; however, some of the authorities’ actions and initiatives may increasingly test this unity. This could have been the case with the recent sacking of popular army commander Valery Zaluzhny and his team, but no protest took place. In the current climate, discontent is unlikely to result in street protests, let alone violent ones.
In Ukraine, the risk of terrorism — in the traditional sense of the word — has nearly always been low and generally static. The country has avoided terrorist attacks by radical elements seen in other parts of the world. This was true for many years before the war and remains the case.
However, there is a unique dimension of the terrorist threat in Ukraine, which is associated with Russian aggression: the risk of Russian missile attacks on Ukrainian cities and towns. This is likely to remain an everyday reality for as long as the war rages on.
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Technically, the currency situation has deteriorated in recent months. Following a period of relative currency stability during much of 2023, the Ukrainian hryvnya has started depreciating against the de facto peg, the U.S. dollar, in both the official and market exchange rates. The extent of this depreciation may look significant — reaching over 5% since the beginning of 2024 — but the trend itself is not surprising.
Although domestic demand for foreign currency exceeds supply, the National Bank of Ukraine (NBU), the central bank, has been reducing the weekly amount of net foreign-currency sales on the interbank exchange — by more than a half on average since February. This reduction suggests that the NBU is pursuing a strategy of limited market intervention, possibly aiming for a controlled devaluation of the currency up to a certain threshold. The government is likely to welcome this approach, as it boosts the foreign-financed portion of the state budget when measured in hryvnya terms.
By contrast, the risk of trade sanctions is unchanged and continues to concern almost exclusively Russia. The only risk for other countries arises from a disagreement with Poland over Ukrainian grain exports. Thus far, Ukraine has refrained from reciprocal trade restrictions against Poland; however, fresh reports indicate that the Polish government plans to extend its ban on Ukrainian grain exports to include transit through its territory starting in April.
As anticipated, this risk is heightened due to the significant increase in debt payments Ukraine is obligated to make in 2024 compared with the previous year. The total yearly sum now stands at $10.5 billion, excluding payments made in January and February. Nearly half of that sum ($4.5 billion) is scheduled to be paid in September, overwhelmingly to Eurobond holders.
The situation is challenging but manageable. First, the Ukrainian government aims to extend the restructuring deal with Eurobond holders for at least another two years. Negotiations are set to commence in April, reportedly under the International Monetary Fund’s (IMF’s) guidance. Secondly, the IMF has approved a new tranche to Ukraine worth $880 million. This, combined with other scheduled tranches for the year, totals nearly $6 billion in support. Finally, despite recent reductions, the NBU still holds ample foreign reserves, amounting to $37.1 billion as of March; however, Ukraine prefers to avoid depleting these reserves and explore alternative options.
The content of this document is believed to be accurate at the time of publishing but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. WTW is not in a position to provide any advice in relation to sanctions. Please ensure you are taking advice from your own legal and/or other professional advisors before taking any action. The views expressed in the section are the opinion of Oxford Analytica and do not necessarily reflect those of WTW.
