Key Political Risks Facing Central & Eastern Europe, Southest Europe and Central Asia in 2026

2026 will be a year of substantial challenges for international businesses globally. Investors in Central & Eastern Europe, Southeast Europe and Central Asia & the South Caucasus will face a combination of political and regulatory challenges amidst an increasingly complex geopolitical environment, likely accompanied by political instability and an uneasy economic climate.

 

Aretera’s 2026 Annual Forecast is an attempt to summarize the likely impact of this instability across our regions, hopefully delivering greater insight and understanding to those tasked with preparing for what lies ahead.

 

Our fourth annual report draws on the local expertise and insight of Aretera consultants in no fewer than 30 countries, and takes an extensive look at the political and geopolitical risks in CEE, the Western Balkans, Türkiye, Central Asia and the South Caucasus. It also attempts to give an initial, succinct projection on how this year’s elections may unfold and the consequences for the business environment of potential political changeovers.

Key Political Risks Facing Central & Eastern Europe in 2026

For Central and Eastern Europe, 2026 will be characterized by significant geopolitical realignment, internal political shifts, fiscal consolidation and a number of high-stakes electoral contests. As in recent years, Russia remains the primary security threat – not only to war-torn Ukraine but also to NATO’s eastern flank and, indirectly, to the wider CEE region. The Baltics states have adopted “war-time economy” postures, raising defence spending to unprecedented levels, while Poland, also the region’s largest economy, is working heavily on strengthening its Eastern Shield defence initiative. This focus on deterring Russia has triggered significant tax reforms and diverted funds from social sectors, potentially risking public criticism in certain countries.

 

 

In Ukraine, a positional war is expected to persist throughout 2026 unless the ongoing peace negotiations secure a lasting settlement. Kyiv faces a transactional U.S. approach to military support, forcing a strategic balancing act between Washington’s peace proposals and European security interests. Accordingly, the ongoing war or its termination will continue to be the decisive element for Ukraine’s domestic political processes, economic development and international relations throughout 2026, including potential presidential and parliamentary elections, which are on hold due to martial law. External pressure will be persistent in the case of neighbouring Moldova, as well, however the country’s renewed pro-EU majority following last year’s parliamentary elections will offer policy predictability and continued alignment with the European bloc.

 

 

Domestically, Poland and Romania are navigating complex dynamics that impact their broader stability. Poland remains in a state of co-habitation between a pro-EU coalition government and a conservative President. This relationship is expected to be a primary source of domestic friction as the President can utilize vetoes, constitutional referrals and presidential legislation as a counterweight to the centrist ruling bloc. Romania enters the year in a high-risk environment characterized by a fragile four-party and pro-EU coalition and significant fiscal pressure to reduce the budget deficit. In both countries, the management of EU funds and energy independence remain critical priorities for maintaining economic momentum.

 

 

In Czechia, the political landscape is shaped by the recent electoral victory of the ANO movement as the new three-party governing coalition, which holds a narrow majority in parliament, has initiated a systematic overhaul of public administration while adopting a transactional stance toward certain EU policies. Elsewhere in the region, Bulgaria is set to reach a major milestone with its official entry into the Eurozone, which is expected to eliminate currency costs and increase transparency despite risks of administrative pressure on the private sector. In parallel, Sofia faces (yet again) an unwanted electoral cycle in the spring and an uncertain presidential race later this year.

 

 

Hungary’s April parliamentary election is unarguably this year’s most anticipated electoral contest in CEE. For Budapest, the primary political risk is the unprecedented uncertainty surrounding the election. The rise of the main opposition TISZA party has created the most contested race since 2010, presenting an unprecedented challenge to the rule of the governing Fidesz-KDNP alliance. Beyond the election itself, the next government will face significant policy uncertainty regarding unavoidable fiscal adjustments, the future of windfall taxes and the pace of re-engagement with EU institutions to unlock frozen recovery funds.

 

 

Following the mega election year of 2024, Croatia enters 2026 with a continued rivalry between Prime Minister Andrej Plenković and President Zoran Milanović. Despite ongoing polarization, the Plenković Cabinet retains a solid parliamentary majority, ensuring policy continuity and supporting Croatia’s focus on energy, infrastructure and defence.  Slovenia by contrast faces a highly unpredictable election year in which a polarized environment may lead to a protracted government formation period.

Key Political Risks Facing Southeast Europe & Türkiye in 2026

In 2026, Southeast Europe faces a complex interplay between macroeconomic resilience and deep-seated structural and political vulnerabilities. While several nations are making strides toward EU integration, progress is frequently tempered by executive dominance, entrenched corruption and institutional fragility. Economic stability is generally supported by robust tourism and fiscal reforms, yet persistent challenges such as high living costs and opaque procurement systems continue to shape the investment landscape.

 

 

As Türkiye enters 2026, it aims to shift its narrative from crisis management to strategic autonomy, positioning itself as an intermediary in connectivity, security and tax governance between advanced and emerging markets. Despite tight monetary conditions, the economy remains resilient, supported by orthodox policies, strong exports and deep integration with European and regional value chains. The modest wage and pension adjustments reaffirm fiscal discipline under the Medium-Term Program, suggesting that early elections in 2026 are unlikely.

 

 

Greece faces political realignment and eroding approval ratings for the New Democracy government. Public mistrust is high due to corruption cases, such as the Tempi tragedy and the misuse of EU funds. Despite this bsckdrop, fiscal fundamentals remain strong, with GDP growth projected at 2.4% and debt declining to 137%. Offshore gas exploration also positions Greece as a regional energy hub.

 

 

Serbia faces a unique political-economic risk involving its energy sector. U.S. sanctions on oil producer NIS had temporarily shut down the pivotal Pancevo refinery, with production restarting after OFAC issued a new operating license valid through January 23. Possible solutions range from OFAC-approved buyers (with talks of Hungary’s MOL as a likely candidate) to forced divestment of Russian ownership. The the latter option could signal a major policy rupture with Moscow, carrying high risks since Serbia remains dependent on Russian gas and lacks a long-term supply deal.

 

 

Albania is a frontrunner for EU accession, with all negotiation chapters open and a 2030 membership goal. However, the country is experiencing deep executive concentration following the Socialist Party’s 52% victory in 2025. While the economy is stable, risks stem from corruption in procurement and an incomplete judicial vetting process.

 

 

Montenegro is navigating fiscal pressures and ambitious EU goals. The government aims to close key negotiating chapters by the end of 2026, which could signal institutional maturity. However, the economy remains heavily dependent on tourism and foreign investment, leaving it vulnerable to external shocks.

 

 

North Macedonia faces a stalled EU trajectory due to a dispute with Bulgaria over constitutional amendments. While the ruling VMRO-DPMNE has consolidated power locally and nationally, this has limited opposition oversight. Economic growth is stable but remains vulnerable to energy price fluctuations and fiscal tightening.

 

 

Kosovo enters the new year following a 2025 defined by institutional deadlock and snap elections. A critical juncture will occur in spring 2026, when the Assembly must elect a new President. Failure to reach a cross-party compromise could trigger renewed paralysis, risking vital EU funding through the Reform and Growth Facility.

 

 

Similarly, Bosnia and Herzegovina (BiH) is experiencing institutional strain and pre-election polarization. The October general election could reshape the balance of power, with Republica Srprska’s long-dominant SNSD facing its most serious challenge in decades. Despite European Commission approval of its Reform Agenda, ethnic vetoes and fragmented governance continue to slow legislative output.

Key Political Risks Facing Central Asia, Mongolia & the South Caucasus in 2026

Central Asia, the South Caucasus and Mongolia face electoral, constitutional and economic transitions this year that will redefine their geopolitical alignments. The struggle between Western, Russian and Chinese influence remains the dominant external pressure, while internally, the concentration of executive power and structural economic vulnerabilities pose the greatest threats to stability. Kazakhstan, the region’s largest economy, is striving to maintain its “multi-vector” foreign policy amidst pressures to align with either Russia or Western sanctions regimes. A significant internal risk is the 2026 implementation of a new Tax Code, which raises the VAT to 16% and introduces progressive income taxes to fund a record social budget. A planned referendum on transitioning to a unicameral legislature could weaken checks and balances and fuel public distrust if representation for independent candidates is reduced. The country’s joining of the Abraham Accords seeks to diversify strategic partners, though it risks complicating relations with regional powers such as Iran and Türkiye.

 

 

In Uzbekistan, authority concentrates within a narrow circle surrounding President Shavkat Mirziyoyev and his daughter, Saida Mirziyoyeva. This personalization of power may diminish institutional independence and merit-based governance. Economically, the country must balance WTO standards against the norms of Eurasian Economic Union (EAEU) as it approaches its March 2026 WTO accession. In parallel, severe energy deficits continue to constrain industrial growth. Turkmenistan continues under the strict authoritarian control of President Serdar Berdimuhamedow, with stability coming at the cost of modernization, while its neutrality is being tested by tension on the Afghan border.

 

 

Azerbaijan maintains political stability under President Ilham Aliyev following his 2024 re-election. However, massive spending on Karabakh reconstruction (projected at $9.4 billion for 2026–2029) interacts with risks from declining oil prices, as energy still accounts for 90% of export revenues. Geopolitical relations with Russia remain strained following the 2024 downing of a civilian aircraft. Georgia is mired in a legitimacy crisis following the contested 2024 elections and the suspension of EU accession talks. The government’s repressive measures against dissent have led to a decline in Western support, pushing the country further into Russia’s orbit. While FX reserves reached a record $5.8 billion in late 2025, high dollarization and labour shortages due to mass emigration remain primary economic threats for 2026. Neighbouring Armenia faces a pivotal June 2026 parliamentary election that will act as a referendum on Prime Minister Nikol Pashinyan’s Western-oriented trajectory. A victory for the ruling party could lead to a referendum to remove Nagorno-Karabakh references from the constitution, potentially sparking civil unrest. Meanwhile, Russia’s influence over 80% of Armenia’s energy supplies provides Moscow with significant leverage to disrupt Yerevan’s EU rapprochement.

 

 

Kyrgyzstan remains governed by the duopoly of President Sadyr Japarov and security head Kamchybek Tashiyev, a model that risks entrenching clan politics. The establishment of the Tamchy “local offshore” territory with English law and full tax exemptions has raised concerns about its use as a channel for Russian capital to bypass sanctions. Additionally, a worsening energy deficit, fueled by a 90% reliance on hydropower and low water levels in the Toktogul reservoir, remains a primary socio-economic risk. Neighbouring Tajikistan is preparing for an hereditary transfer of power from President Emomali Rahmon to his son, Rustam Emomali. The country’s extreme economic dependence on labour migration remains a critical vulnerability, especially as 85% of its migrants go to Russia. Furthermore, legislative bans on religious practices for minors could fuel radicalization and future unrest.

 

 

Mongolia enters 2026 reeling from a constitutional crisis triggered by teachers’ strikes and a power struggle between Parliament and President Ukhnaagiin Khürelsükh. Although Prime Minister Gombojavyn Zandanshatar was reinstated after a presidential veto, the resulting executive-legislative deadlock threatens vital reforms. Climate risks such as the 2024 livestock losses place further strain on an economy already heavily dependent on mining exports to China.