Economists of the Central Bank warned of the inevitable decline in living standards due to the need for import substitution

The Central Bank (CB) modeled scenarios for the development of the economy depending on the effectiveness of import substitution of investment and consumer goods. Experts came to the conclusion that even with a positive scenario, the country’s standard of living is declining. This is due to the need to transfer the labor force to import substitution and maintain the capital intensity of GDP at a higher level.

Modeling was carried out by economists of the Research and Forecasting Department of the Central Bank Maria Lymar, Alexander Reentovich and Andrey Sinyakov, reports RBC. Their study is presented in the article “Economics of a Raw Materials Exporter in the “New Reality”: Quantitative and Structural Parameters”, published in the December issue of the scientific journal “Economic Issues”. The material states that it reflects the personal opinion of the authors.

The calculations used the parameters of the Russian economy in 2019, when the economy was fully open. The experts considered three scenarios for the effectiveness of import substitution.

• Optimistic scenario implies the absence of difficulties with the creation of complete analogues of imported products and the absence of productivity losses when using import-substituting goods. Under this scenario, GDP first declines, but then slowly recovers over 15 years, the economy reduces the production of domestic goods and increases the production of import-substituting goods. Experts believe that such a strategy pays off in the long run.
• Neutral scenario – incomplete import substitution – means that the quality of domestic goods is not guaranteed, and there is an asymmetry between the two types of imports: it is easier to replace consumer goods than investment ones. In this case, GDP initially declines and later recovers only partially. Consumption is generally reduced, and the standard of living of consumers becomes lower than in the optimistic scenario.
• Pessimistic scenario — with a low level of substitution. The share of domestic goods in consumption is minimal; limited export resources are directed to the purchase of imported, predominantly consumer goods. Under this scenario, GDP will not recover and will eventually fall by a third of the baseline scenario. Its decline is due to three factors: the forced use of labor and capital for import substitution, the reduction in export earnings, and the downsizing of the economy.

In October the government formed a pool of 162 import substitution projects until 2030. It is planned to allocate 5.2 trillion rubles for these purposes. Of these, 2.3 trillion rubles. will be provided in the form of soft loans, another 2.9 trillion from investors. 5 billion rubles have been reserved in the federal budget for 2023. to subsidize the rate for import substitution projects, as well as state guarantees.

Laura Keffer