Boris Kheifets: you should not perceive 0.3% of potential growth of Russia’s GDP in 2023 too optimistic

IMF, unexpectedly for many, announced that Russia’s GDP in 2023 may not be negative, as previously assumed, but positive, albeit on a “small scale.” Invest-Foresight learned from Boris Kheifets, a professor at the Financial University at the Government of the Russian Federation, how real such a forecast is and what it means for Russia.

– So, the IMF unexpectedly revised the forecast for the change in the Russian GDP in 2023 from minus 2.3% to plus 0.3%. Why?

– This is due to the results achieved in the economy by the Russian government in 2022. Let me remind you that at first a decline was predicted from 8% to 10%, then it decreased to 2.5%. And in general, we can say, that the domestic economy adapts quite successfully to the current situation, despite very severe sanctions pressure, and prohibitions that limit Russia’s exports of its main products – oil and gas.

I want to make a reservation that just the day before I read the new report of the Bank of Russia, in which they give a forecast for 2023 that is on the one hand more than uncertain, but on the other hand, is quite interesting. So, the dynamics of GDP could be between minus one and plus one per cent. It is worth admitting that it will surely be very difficult to say, since a lot depends, among other things, on the situation in the oil and gas markets on how, where and how quickly export flows can be channeled.

– What else is important?

– Prices are important. If in Russia, as already announced,  oil production will be reduced, while in fact we already underproduced it in 2022, then budget revenues will be less.

In addition, another factor I important that affects the balance of payments. And in general, one of the achievements of 2022 is just its large surplus, in the amount of $257 billion achieved due to large volumes of exports. But the main thing is that such a surplus arose due to the containment of imports. In the last couple of months of the year, and even more so now, thanks to the fact that companies debugged new supply chains, found new partners, arranged parallel import, although they say that its size is no more than $10 billion, a surplus, of course, is shrinking. In 2023, it may be reduced by 3.5 times.

Yes, this may affect the growth of the domestic economy as a whole. The weakening of the ruble is possible, although the forecast is therefore still quite favorable, the consensus forecast is 72-73 rubles per dollar. So far, let me remind you, exchange rate quite steadily reached 74-75 rubles per dollar and so far does not want to decline.

– Such small growth is a real option or, let’s just say, it is within the arithmetic error?

– Here are these tenths of a percent… As last year showed, the IMF last year changed its estimates several times, and not only IMF, but the World Bank, as well as the WTO, assessed the situation too.

There are more significant changes, from 1% to 3%, if you look at other estimates. Therefore, these tenths, of course, should not be exaggerated.

Great hope, by the way, rests on the acceleration of the Chinese economy, which, of course, reached a very serious growth rate. And now, in accordance with changing the policy of “zero covid,” lifting quarantine restrictions, the economy of the Celestial Empire is expected to grow.

This, in turn, will lead to an increase in oil demand, including Russian oil, there will be an increase in prices.

It is clear that there are external restrictions on the price ceiling, on deliveries by sea – concerning both tankers, and insurance. But growth is really possible.

At the same time, it is clear that negative scenarios are also possible that are quite capable to drive the economy into the red. Therefore, you should not perceive too optimistic these three tenth percent of Russia’s potential GDP growth in 2023.

– That is, the probability of justifiability of this forecast is low?

– Yes, due to the very high share of uncertainty in the development of the world economy, in the development of the geopolitical situation in the world.

– And when it will be possible to say that the forecast figures will be close to reality? By summer?

– If nothing extraordinary happens, then in July, in my opinion, the IMF will publish the next forecast, which, of course, can adjust by outlining the following trends. But preliminary data on how the year started in Russia, will be following the results of the first quarter.

But again, any extraordinary events may happen that could change the situation.

– What needs to be done to embark on a sustainable growth trajectory of Russia’s GDP in 2023? What does it depend on?

– I will say that the government today is pursuing a fairly reasonable policy. But it cannot regulate some types of expenses. Although a number of actions raises questions for economists. For example, a voluntary contribution is offered to big business, and this directly suggests that there is not enough money. And questions arise, accordingly: why it is necessary to take this money exactly from big business, and not from wealthy citizens, especially since diversified tax has long been offered?

– But this contribution in the estimated amount of 300 billion rubles still can not cover planned budget deficit expressed in trillions of rubles!

– The deficit, indeed, is predicted in the amount of 3 trillion rubles, and already there are talk about it being more than that figure. Initial plan of the budget for 2023-2025 assumed a deficit of about two  percents. And this money from big business really won’t give much aid from financial point of view.

Therefore, I repeat, we must pay attention to other financial instruments. But in general, one cannot do without ways to withdraw excess profits.

– Rising taxes for the rich, a one-time levy on big business – is all this able to bring Russia to sustainable GDP growth?

– Why is it seized? In order to invest in those industries that are capable of production of increase, where wages will rise. Incomes of the population will grow, it will buy more, demand will increase production and so on – the country will be rich.

The basis of all this is material production and the service sector, which is still underdeveloped in Russia.

There is a lot of indicators in general. Somehow, it is necessary to reach the growth trajectory, moreover, due to internal reserves, since foreign investors are not entering our market, private investment, by the way, also does not increase.

It is clear that money can be found, in the end it can be printed. Yes, it will accelerate inflation with all its negative consequences, but this is also one of the options.

– 0.3% is still very little. What should Russia’s GDP growth be?

– The answer to this question, by the way, is very easy! If the global average GDP growth rate is projected at about three percent, then in order for us to increase our share in this GDP, it is necessary to grow higher than three percent.

And to catch up with one of those who got ahead, like the same Vietnam or India, I am not talking about Portugal, we need even more – 7-8% and even more.

In short, our GDP should be higher than the world’s. But we’ll not face a sharp increase.

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