Bank of Russia's Experts Review Stages of Russian Economic Transformation Under Sanctions
20:32 GMT 21.04.2022 (Updated: 13:55 GMT 06.08.2022)
© Sputnik / Sergey GuneevFlag on the building of the Central Bank of the Russian Federation.
© Sputnik / Sergey Guneev
MOSCOW (Sputnik) - The Bank of Russia on Thursday issued a monthly report dubbed Talking Trends: Economy and Markets outlining four stages of structural transformation of the Russian economy under long-lasting Western sanctions.
The authors of the report noted that their opinion may not coincide with the official position of the Bank of Russia.
"The persistence of sanctions and foreign companies’ self-imposed restrictions after the economic decline during the adjustment period will cause a structural transformation in the economy based on alternative, less technology-intensive imports and a gradual development of import-substituting production facilities and technologies. The economy will lose a part of its potential, and its recovery will be gradual and long-lasting," the bank said in the executive summary of the report.
The bank's analysts said that the scenarios for the transformation are still unclear; however, they mentioned that it could go through four stages.
During the first stage, many technological, manufacturing, and logistical chains will be disrupted, leading to a gradual increase in issues due to the lack of spare parts and maintenance services for foreign equipment, thus leading to more frequent equipment failures and an overall reduction in technical efficiency. The analysts said that at this stage the task of the country's economic policy is to minimize the scale of the downturn through the government assuming a part of the financial risks.
The second stage stipulates the initial adjustment of companies to new conditions. The technological level of the Russian economy will continue to decline at this stage due to the further wear and tear of equipment and its replacement by less productive alternatives, leading to a decline in employment in the industry; however, the employment will rise in spheres of foreign trade and equipment maintenance to substitute the previous chains of supplies.
In the third stage, the Russian economy will face industrialization based on the development of less advanced technologies, thus leading to partial import substitution of technologies and productions. At the same time, the cost of that development will rise due to a lack of mass production, so the technical and economic effectiveness of the created technologies will be inferior to the current ones. The employment in spheres of foreign trade and industry will further accelerate, but the economy will face a decline in environmental friendliness.
During the fourth stage, the structural transformation will be completed with a new balance built on less technological equipment with a gradual return to previous technological levels. The unemployment levels are expected to be low due to the need for more workers in the industry. In the medium term, the Russian economy is expected to see an increase in manufacturing industries and the business sector.
The analysts noted that the government’s support for entrepreneurial activity in Russia should be the strategic priority for the successful transformation. This includes the liberalization of the economy, the reduction of state regulation and control of the economy, and the reduction in the tax burden.