USSR: ECONOMIC PROJECTIONS THROUGH 1990-A NEW LOOK

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00313R000100020002-9
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• Document Page Count: 35
• Document Creation Date: December 21, 2016
• Document Release Date: February 20, 2009
• Sequence Number: 2
• Publication Date: April 1, 1984
• Content Type: REPORT

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USSR:
Economic Projections
Through 1990-A New Look
Confidential
SOV 84-100175
April 1984 Z
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USSR:
Economic Projections
Through 1990-A New Look
A Research Paper
Confidential
SOV 84-100175
April 1984
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small.
Projections of Soviet economic development provide an essential backdrop
for discussions of Soviet policy options and their implications for the
United States. The annual research papers in this series are designed for
analysts of Soviet economic, political, and military trends and are intended
to give them a quantitative outlook for the Soviet economy that incorpo-
rates as much as we can say about specific factors influencing growth
prospects-highlighting areas of uncertainty. A study of alternative projec-
tions enables us to distinguish between those uncertainties that significant-
ly cloud our view of future growth (that is, those in areas where change will
have a major impact) and those whose impact on growth is likely to be
fect it.
In this annual paper we link recent developments-new analyses of
particular Soviet economic issues, published during the year, and events
affecting the economy-to overall Soviet growth prospects. Given its focus
on an attempt to quantify the major influences on Soviet growth prospects,
this paper omits much of the information of a qualitative nature that is
dealt with in other publications. Such information is particularly important
to analysts who are considering the likelihood of future events in order to
develop a single best estimate of the Soviet economic future. The objective
of the annual projections paper is more modest-to develop a reference
picture of the future and to bound some of the major uncertainties that af-
Confidential
SOV 84-100175
April 1984
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USSR:
Economic Projections
Through 1990-A New Look
Key Judgments In 1981 and 1982-the first two years of the 11th Five-Year Plan (1981-
Information available 85)-growth in Soviet gross national product (GNP) was 2.1 percent and
as of 15 December 1983 2.6 percent per year, respectively. In 1983 it was 3 to 3.5 percent,
was used in this report.
according to our estimates. This improvement probably owes much to the
effect of favorable weather on sectors such as agriculture and transporta-
tion and something to the effect of gains from the regime's efforts to
enforce labor discipline. Despite that improvement, however, our projec-
tions-under the assumptions set forth herein-indicate that Soviet eco-
nomic growth will average only 2 percent per year for the decade.
This paper presents a set of conditional projections of the growth prospects
for the Soviet economy through 1990. Using a large-scale econometric
model, we combined a structural description of the economy with assump-
tions about likely trends in the 1980s to develop a baseline projection or
reference outlook. We then adopted other assumptions-possible, though
perhaps less likely, developments in important economic factors-and used
these in the model to project the bounds within which future economic
growth is likely to fall. Taken together, the baseline and alternative
projections provide a preliminary, quantitative picture of the prospects for
the economy through the rest of the decade, as a point of departure for dis-
cussion and further analysis.
On the basis of these projections, we expect that:
? The average annual GNP growth rate will be roughly 2 percent in the
1980s. (It was 5 percent in the 1960s and 3 percent in the 1970s.)
? Industrial output, which accounts for a little more than one-third of the
national product, will grow at slightly more than 2 percent per year over
the decade.
? Agriculture will be the most volatile sector of the economy, as always.
We make projections based on known trends in agricultural production
and an assumption of average weather conditions, but the changeability
of specific weather from year to year will cause actual agricultural output
to vary rather widely around any projected trend.
? Per capita consumption will remain at a low level during the decade,
allowing at best only modest improvements in average living standards.
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? Energy supplies will constrain economic growth little through the middle
of the decade. In the later years, they could be a modest drag on growth
if energy exports are held close to present levels and energy demand
continues on the trend we expect.
? Foreign trade will not help the Soviet economy in the 1980s as it did in
the 1970s, when fast-rising prices for energy and gold and the rapid
growth of arms sales enabled the Soviets to increase real hard currency
imports at a rapid rate. During the rest of this decade, real hard currency
exports are projected to grow about 1 percent a year.
This general growth outlook could change with changes in various
economic factors. The model's response to our alternative assumptions
indicates that:
? A shift in defense spending policy would have only a small impact on
overall growth during the decade, because the industrial plant in the
Soviet Union is very large relative to the amount of resources involved in
shifts of this kind. A shift in defense spending policy, however, has
considerable impact on both consumption and investment in the near
term, and changes in investment could have important implications for
growth in the early 1990s.
? Only one of our alternative assumptions would open the possibility of
significant improvement in growth prospects by 1990-a return to more
favorable productivity levels of the late 1960s and early 1970s. The
comprehensive organizational reforms needed to achieve such' a dramatic
turnaround in the USSR are not likely to be in place soon.
Our results suggest that, without a fundamental reform of the economic
system or a combination of very favorable circumstances bringing back
pre-1975 productivity relationships, the Soviets probably can do little to
alter the economic growth trend through 1990 as it is indicated in our
baseline. They will, however, have some opportunity to change the
distribution of output to competing claimants-investment, defense, and
the consumer-in pursuit of policy goals.
The chief obstacles to substantial improvement in Soviet economic per-
formance are problems built into the economic system itself. Nevertheless,
the period of continued low level of growth that we project through 1990
should not be taken as a harbinger of economic collapse. Growth will be
sufficient to support a wide range of policy initiatives, especially in the
areas of defense and investment, and still keep the living standard of the
traditionally hard-pressed Soviet consumer from declining. It would be
more accurate to interpret our projections as depicting a difficult and
stressful period for a large and viable, if inefficient, economy.
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Contents
Key Judgments v
Aspects of Soviet Economic Growth Under Baseline Assumptions 3
Labor Productivity 7
Hard Currency Trade 11
Other Factors Influencing Economic Growth 14
Distribution of GNP 18
Comparison of 1982 and 1983 Projections 18
Scenarios Favoring the Consumer or the Military 19
Selected Tables From the Baseline Projections 21
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USSR:
Economic Projections
Through 1990-A New Look
We continue to project a difficult time for the Soviet
economy through the 1980s. Energy problems may
pose less of a threat to growth this decade than we
thought earlier, but demographic factors are certain
to hold down labor force growth, and partial depletion
of the raw material base in the developed European
regions will increasingly force expensive new invest-
ments in remote areas of Siberia. Furthermore, im-
provements in labor productivity will be hindered by
the continued slow growth of capital investment, and
hard currency trade is not likely to offer a solution to
the industrial materials and investment problems that
are already emerging. Superimposed on these trends
is the sharpening competition for resources between
the civilian and military sectors of the economy.
Leadership changes in the USSR have increased the
uncertainty in our economic forecasts in general and
in our forecasts of the distribution of national output
among major claimants in particular. Decisions to be
made in 1984 and 1985 will have important?implica-
tions for the pursuit of policy goals related to defense,.
investment, and consumption during the 12th Five-
Year Plan (1986-90)-the timespan that occupies a
large part of the period of our forecasts. While overall
growth in the 1980s may not itself be shifted much by
choices here, the impacts on military spending or on
the consumer could be substantial.
The projections shown in this paper were developed
using a large-scale econometric model.' The model
enables us to integrate individual assumptions and
analytic judgments so that a consistent set of general
quantitative trends can be deduced. The assumptions
and judgments that underlie the baseline projections
model have been made since 1979, but its essential structure has
not changed. This model was constructed primarily to make
medium- to long-term projections. Its estimates for the short term,
while very near the trend, are not generally as accurate as those
are of two general types: where we have developed
supporting analyses, the input represents our current
view of likely developments in the Soviet economy
during the rest of the 1980s; and, where the future is
particularly ambiguous, we use an extrapolation of
the recent past as a point of departure, and then
consider alternative assumptions (see inset). For the
most part, our projections are based on historical data
updated through 1981 or 1982 and on statistical
parameters estimated over a period ending a year or
two before that.
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The baseline projections, therefore, represent a Soviet
growth scenario that differs from other scenarios only
in the values that are given to the model. We have
developed some alternative scenarios by deliberately
changing the inputs from their baseline values to 25X1
reflect alternative Soviet policies or external events
and have also analyzed the projected trends that
result from these changes. The purpose of these
projections is to provide a sense of the range within
which future Soviet growth is likely to fall and to
assess some major factors influencing that range. In
this sense, the baseline should be viewed as a point of
departure and should not be construed as a formal
"best estimate" of the outlook for the Soviet economy.
The baseline assumptions and projections follow, in
two parts: one presents text with a graphical sum-
mary, and the other displays selected estimates in
tabular form.' Given the nature of the assumptions
postulated in this paper, we have much more confi-
dence in the general trends of the projections than in
estimates for particular years. The annual figures,
however, can be used to illustrate where the economy
might be in a given year in the absence of major
changes in political and economic conditions.
shown because of rounding
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Uncertainties in the Projections
The growth rate of Soviet GNP during the 1980s is
the "bottom line" of the economic projections pre-
sented in this paper. The projections of this growth
rate are developed through a process in which our
model calculates GNP values on the basis of a
number of input variables, which represent many
kinds of data from a variety of sources. The process
requires that a value for each variable be put into the
model for each year of the period over which the GNP
projections are to be made. Whenever previous analy-
sis has provided estimates of likely trends in some of
these input variables, we have adopted those esti-
mates; in other cases, we have developed independent
estimates; and in economic areas where the future is
particularly ambiguous, we have simply examined
alternative assumptions.
There are differing degrees in the certainty that can
be attached to these input data values. Our estimates
cif laborforce growth are relatively firm, for example,
because all the people who will start working during
this decade can already be identified in existing
population data and we have good information on
mortality rates. At the other end of the certainty
spectrum is the distribution of GNP among primary
uses-consumption, investment, and defense. This
distribution is subject to the policy choices of Soviet
leaders, and the values for the allocations to defense
spending and investment that we must develop and
put into the model are analytic assumptions on our
part, which may be subject to substantial revision as
events unfold. For example, we assume certain
Later in the text, appropriate sections discuss hypo-
thetical shifts in our baseline assumptions about the
future Soviet economic environment and policy deci-
sions and the impact of these shifts on the baseline
solution. Three of these scenarios deal with the pros-
pects for agriculture, trade, and productivity. Two
reflect alternative degrees of Soviet success in meeting
energy requirements. And two involve alternative sets
of assumptions reflecting fundamentally different pol-
icy decisions as to the priorities to be accorded defense
and consumer welfare. The illustrations that accom-
pany the discussion summarize some major aspects of
the data in the appendix
growth rates for defense expenditures and for mili-
tary hardware procurement, through the 1980s on the
basis of our analysis of observable current and
historical trends. The actual growth rates of these
variables in the future, however, can be influenced by
decisions of the leadership in ways that the size of the
labor force in the 1980s (to a large extent already
determined by demographic factors) can not.
Most input data fall between those extremes, and the
degree of certainty frequently depends on the amount
of research that can successfully be applied to the
subject. Confidence in our energy production forecast
is buttressed by a major research effort in that area,
for example, and continuing research indicates sub-
stantial evidence of a long-run decline in productivity
growth in the Soviet economy. On the other hand, no
one would claim that the future price of gold-a
factor in our calculation of the Soviet trade bal-
ance-can be forecast with confidence.
In general, we have more certainty about input values
that are subject to little, if any, manipulation through
policy or are clearly reflections of long-term trends
that are not likely to be reversed quickly. Certainty is
less about the assumed values of input variables that
can be strongly influenced by such factors as policy
decisions and market prices. One reason for looking
at alternative GNP projections is to gauge how
sensitive the values generated by the modeling proc-
ess are to some of the more important uncertainties in
the input variables.
Baseline Assumptions
The projections presented in this report are based on a
number of key assumptions about future trends in the
Soviet economic environment. We have chosen these
to represent (1) what we think will be likely develop-
ments in the 1980s or (2) a continuation of present or
historical trends, where data are too ambiguous to
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support a judgment about the most likely outcome.
Our baseline assumptions include the following:
? The average productivity of the Soviet capital stock,
which has fallen substantially since 1975, will con-
tinue to fall, since a given amount of investment will
provide a smaller growth increment than in the past.
? The labor force will grow more slowly in the 1980s
than it did in the 1970s-at an average annual rate
of 0.7 percent, down from 1.5 percent.
? The allocation of investment and labor among pro-
ducing sectors will reflect the trends evident in the
Soviet Five-Year Plan for 1981-85. The shares
going to the energy sectors will increase (at the
expense of some consumer sectors). The shares
accorded to heavy industry will remain relatively
constant through 1990.
? Oil production (currently 12.4 million barrels per
day) will nearly reach the plan target of 12.6 million
b/d in 1985, then begin a slow decline to 11.5
million b/d in 1990. On the other hand, gas produc-
tion will continue to increase rapidly, more than
offsetting the drop in oil output.
? The energy efficiency of newly installed plant and
equipment will continue to improve. By coupling
these gains with our projections of capital stock, we
can estimate total Soviet energy requirements.
? Fundamental economic reform will not be part of
the Politburo agenda. We assume that there will be
no shift in political or economic policy having a
significant impact on economic performance.
The issue of future Soviet defense spending deserves
special attention. Our latest estimate of recent defense
spending concluded that real growth in total outlays
for the period 1976-81 averaged about 2 percent
annually, rather than the 4 percent it had averaged
earlier. During the same period, there was little real
growth in procurement of military hardware.
Because the causes of the slowdown in military
procurement growth are not fully understood, we
cannot state confidently (1) whether the growth trend
will rebound quickly or (2) whether the procurement
slowdown will retard the increase in overall defense
expenditures for some time. To develop a baseline
projection of Soviet growth to 1990, we have assumed
that the slower growth in total defense expenditures
will continue unchanged through 1990-but that,
within the total, military procurement growth will rise
slightly and research,, development, testing, and evalu-
ation (RDT&E) growth will fall slightly after 1985.
Since the issue of future defense growth involves
considerable uncertainty at this point, we examine in
a later section the impact on Soviet growth prospects
of alternative defense spending assumptions.
? With continued growth of domestic energy require-
ments, the Soviets will face a conflict between
maintaining oil exports and meeting domestic needs.
We assume that (while making a significant reduc-
tion in oil exports) they will absorb most of the
energy shortfall domestically, thus slowing the rate
of growth of the economy.
? The Soviets cannot count on foreign trade to provide
a way out of their difficulties. The oil and gas
markets are likely to be soft for most of the decade,
arms sales will face increased competition from
other suppliers, production problems and growing
domestic demand will hold back increases in exports
of most nonfuel minerals, and low quality and poor
marketing techniques will continue to retard in-
creases in exports of machinery and other manufac-
tured goods.
Aspects of Soviet Economic Growth
Under Baseline Assumptions
Sources of GNP
Our baseline projection of roughly 2-percent average
annual GNP growth in the 1980s indicates that Soviet
economic growth will remain at recent low levels for
the balance of the decade. Soviet GNP grew at a rate
of 2.1 percent per year in 1981 and 2.6 percent in
1982. The stronger economic showing in 1983 (which
returned GNP growth to an estimated 3 to 3.5 percent
for that year) was due primarily to favorable weather
and does not foreshadow a higher rate of growth
through the rest of the 1980s. Low average growth
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Figure 1
Sources of GNP
Average Annual Growth
GNP
8
Industry
Agriculture
Otherb
a Excludes infra-agricultural use of farm products but is not adjusted for
purchases by agriculture from other sectors.
b,,Other" includes construction, transportation and communications, and
trade and services.
will persist through the 1980s, in spite of the improved These changes in our assumptions improve growth
outlook for oil production and the reduced growth in only marginally, because the additional resources
expenditures for military procurement that we assume released for productive use represent only a small
in this year's forecast.' percentage gain for the economy as a whole. The
average GNP growth rate of about 2 percent that we
nroiect for the 1980s contrasts with 5 nercent in the
projections. 1960s and 3 percent in the 1970s.
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-4 1971-75 76-80 81-85 86-90
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Industrial output, which constitutes about 35 percent
of the national product, is likely to grow during the
rest of this decade at a little above 2 percent-a rate
about one-third that of the late 1960s and less than
half that of the 1970s. Industry faces the econ-
omywide problems of slower growth of plant and
equipment,, labor, and other inputs. The industrial
heartland of European Russia also faces a rapid
depletion of raw materials production capacity. More
and more investment resources that might otherwise
contribute additional industrial. output are being used
simply to maintain existing production levels, as new
raw material and energy deposits are developed in the
remote and high-cost areas of Siberia. Even if the
share of annual investment in the oil sector were to
double between now and 1990, a decline in oil produc-
tion over the last half of the decade cannot be
prevented.
Farm production is highly dependent on weather
conditions. We estimate future crop yields on the
basis of the historical trends, incorporating changing
weather trends. The return to trend-line agricultural
growth after the bad harvest years of 1980 and 1981
results in estimates of short-term agricultural growth
that are deceptively high, the return to normal having
the appearance of "growth." Nevertheless, ignoring
year-to-year fluctuations, Soviet agricultural output is
likely to grow at the trend rate over the rest of the
1980s.
Uses of GNP
The projections of aggregate and sectoral economic
growth are influenced by many interrelated factors.
The projected distribution of GNP among end uses
(figure 2) is particularly sensitive to the assumptions
we have made about annual investment allocation
shares and the trend in defense expenditures over the
decade. After calculating GNP as the output of the
producing sectors in the economy, we estimate con-
sumption as the residual claimant on GNP after
investment and defense requirements have been met.
This method is useful:because it reflects the historical
order of priorities in the Soviet command economy;
but it means that our projection of consumption will
be directly affected by errors in our defense and
investment assumptions.
The declining growth in production over the 1980s
noted above in the section on sources of GNP means
slower expansion in the availability of goods and
services to be divided among thecompeting claim-
ants-resources for future growth (investment), the
consumer, and defense. Our projections in 1983, as in
1982, indicate that for the rest of the decade Soviet
economic planners will continue to face the dilemma
of how best to distribute very small increments to
national output. At the end of 1983, however, some of
our GNP distribution assumptions differed signifi-
cantly from those of 1982. In brief, we now assume
that the Soviets will give defense a continuing rather
than a rising priority; this is reflected in the propor-
tion of GNP we project as being allocated to defense.
The difference between our findings in 1982 and 1983
is discussed in the section on GNP distribution (page
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Key Resources
The Soviet economy has followed a path of "exten-
sive" rather than "intensive" growth. Growth has
been largely driven by a rapid expansion of the labor
force and the stock of plant and equipment rather
than, as in the industrial West, by productivity in-
creases.
The increase in the labor force in the 1980s will be
less than half of what it was in the 1970s (figure 3).
The labor force-up by 20 million during 1971-80-is
expected to increase by roughly 9.5 million in 1981-
90.
Our projections indicate that new fixed investment in
the 1980s will increase at less than half the rate of the
1970s, primarily because of slower growth in machin-
ery production and new constuction starts. However,
our current estimate of the growth rate of new fixed
investment for the 1980s, about 2.5 percent annually,
is greater than last year's projection. This is mainly
because we assume that the total value of durable
goods going to the defense sector will not increase
during the period up through 1985.
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 Figure 2
Uses of GNP
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Average Annual Growth
Per Capita Consumption
0 Consumption
= Investment
Defense
a Total investment consists of repairs to the capital stock, net additions to
livestock herds, and new fixed investment for expansion of Soviet
production capacity.
b Defense expenditures are an input to the model (not a projection); they
are assumed to grow at the 1976-81 average annual rate of 2 percent per
year from 1982 through 1990.
c "Other" includes expenditures for government administration, civilian
R&D, net exports, and inventory change.
The impact of the generally reduced expansion of
investment in the 1980s on GNP growth will be
compounded in particular by the increasing demand
for investment goods per unit of output in the energy
sectors. Just to sustain a low rate of growth in energy
output, the Soviets will have to give energy a greatly
increasing share of investment. This will depress the
expansion of investment in the nonenergy sectors. F_
Over the decade, according to our results, a signifi-
cant energy deficit could develop in the domestic
economy. We assume that adjustments in this situa-
tion would include retirement of the most inefficient
energy-using equipment and somewhat lower rates of
capital use.
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Figure 3
Key Resources
Average Annual Growth
Labor
? Agriculture
- Energy industry
Other industry
Otherb
a Does not include housing. The estimates for 1981-85 and 1986-90 reflect
adjustments for reduced use because of a possible energy deficit.
b "Other" includes construction, transportation and communications, trade
and services, and housing.
Labor Productivity
The key to Soviet labor productivity improvement in
the past has been increases in capital per worker.
Now, however, unless Soviet planners achieve more
success in realizing technological innovations, im-
provements in organization, and other sources of
productivity increases, any additional increases in
capital per worker will have less and less effect on
productivity.
Since the mid-1970s, the returns on additional capital
have been diminishing more rapidly than in earlier
years. The reasons for this include (1) raw material
shortages, (2) greater costs associated with the shift in
the locations of raw material supplies from the deplet-
ed areas west of the Urals to Siberia, (3) probably
transportation bottlenecks, and (4) possibly worsening
worker morale.
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Figure 4
Labor Productivity
Average Annual Growth
Total Economy
In spite of the publicity given domestically and abroad
to Andropov's labor discipline campaign, we have as
yet insufficient data to measure an intermediate to
long-term positive effect on productivity. It is even
possible that the influence of those factors that led to
a decline in the effect of extra capital on output in the
late 1970s may intensify in the future.` If that is the
case, our low labor productivity growth estimates
shown here are conservative, and the actual growth
will be even smaller.
The pattern of productivity growth in our 1983
projections is only marginally different from those of
1982. The differences are not significant in terms of
trend. They are due to some shifts in 1983 in our
assumptions about Soviet investment allocations and
to improved prospects for production in some energy
sectors, particularly oil.
KMM
Energy Balance Trends
Estimated Soviet production and export of energy are
key inputs to our model, and the difference between
them can be taken as the estimated amount available
for domestic consumption. In addition, the model
allows us to develop an independent estimate of Soviet
domestic energy requirements based on a projection of
Soviet plant and equipment. It is the relationship
between this need for energy and the amount actually
available for consumption that affects projected GNP
growth: the closer the amount of energy available for
consumption comes to meeting requirements, the
closer is GNP growth to the potential defined by labor
force and capital stock trends. In our modeling, if
energy available for domestic consumption is not
sufficient to meet requirements, growth will not reach
this potential because some capital stock, lacking
energy, will be idle
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Figure 5
Energy Balance Trendsa
Consumption Shares
1980
Net Export Shares
1980
a The overall size of the circles suggests the relative importance of
production, consumption, and net export of energy.
b "Other" includes hydroelectric and nuclear power, as well as shale
and other minor fuels.
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We estimate that primary energy production will
grow by about 1.7 percent per year on average for the
rest of the decade, down from 4.6 percent in the
1970s. Expected gains in gas production will be
somewhat offset by declining oil production and con-
tinued stagnation of coal output. For the USSR to
maintain a positive energy balance, the planners must
hold domestic energy consumption growth to a little
below 2 percent a year if critical exports to Eastern
Europe and exports to the West for hard currency are
.to be met.
At the same time, our projections indicate that do-
mestic requirements for primary energy-which are
largely determined by the size, age, and composition
of the capital stock-will continue to rise at an
average of about 2.7 percent annually.
The implication of these trends is that the economy
may be operating under an energy constraint-with
domestic energy requirements greater than the energy
available for consumption-especially as the end of
the decade approaches. At the macroeconomic level of
our analysis, the impact of an energy constraint is to
prevent full use of available capital. This leads to
reduced output and has the effect of making our
baseline projection of annual GNP growth almost half
a percentage point lower in the last half of the decade
than it would be otherwise. Our modeling, however,
can only roughly account for the effects of a possible
energy imbalance.
Moreover, we do not yet have clear indications of
Soviet policy concerning- energy investment, produc-
tion, consumption, and trade during 1986-90. The
Soviets' success in avoiding energy imbalances will to
a large extent be determined by their ability to
implement an intricate combination of energy produc-
tion policies, which are likely to be costly in terms of
other economic objectives, and energy conservation
policies, which will face serious obstacles in the
rigidity of Soviet economic management.
Adding to the complexity of this issue, the mix of
energy output will also shift during the decade, as
shown in figure 5. If the economy is to adapt to the
new mix of energy produced, energy-consuming sec-
tors will have to make significant adjustments. For
example:
The chief area of gas-for-oil substitution is electric
power generation. Yet the Soviet refining industry,
which currently produces vast quantities of fuel oil,
is not equipped to process into lighter products the
large amounts of excess fuel oil that would be made
available through gas substitution.
Gas-for-oil substitution also requires substantial
construction of feeder pipelines and, in some cases,
adaptation of capital equipment. The Soviets have
made some progress in these areas, but the outlook
is unclear
Of the two problems, the inadequate refining mix is
the more serious. Although the Soviets have long been
aware of the need to shift the refinery output mix to
emphasize lighter products, they, have yet to introduce
sufficient cracking units. For example, they planned
to build nine cracking units in the 1981-85 period, but
by late 1983 they had reported only two under .
construction. Any rapid development of this sector
would probably require Western assistance.
Energy exports are expected to decline slightly, with
1990 energy exports about 5 percent below the 1982
level. The relative importance of oil and gas exports
will shift, with the expected decline in oil exports.
Increased gas exports will take up some, but not all, of
the slack. Despite these changes, energy will still
remain the dominant Soviet hard currency earner. P
Oil Production Trends. The Soviets' current oil out-
put of about 12.4 million b/d accounts for roughly 40
percent of their total primary energy production.
Three-fourths of this oil is used domestically and one-
fourth exported. Roughly half of the exported oil goes
to the Council for Mutual Economic Assistance
(CEMA) countries, and about one-third goes to the
West for hard currency.
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We estimate that Soviet oil production will begin to
decline after the mid-1980s. This is based on the
increasing requirements for drilling and fluid lift and
on the lagging infrastructure development in West
Siberia. The severity of the decline will depend on
Soviet willingness to increase investment rapidly. We
use a working assumption that production will rise
slightly to 12.5 million b/d by 1985, and then decline
to 11.5 million b/d in 1990
Gas Production Trends. Current gas production of
roughly 8.7 million barrels per day oil equivalent
(b/doe) accounts for nearly 30 percent of total pri-
mary energy production. About 11 percent of the gas
is exported. We estimate that gas output will rise
substantially in this decade. The annual growth rate
will average almost 5 percent through 1990, and
nearly 80 percent of the increase will be used to meet
rising domestic energy requirements. Lagging gas-for-
oil substitution could slow the increase in gas demand,
and hence production could be lower than these
projections. We estimate that by 1990 gas will ac-
count for about 35 percent of total primary energy
production
Coal Production Trends. Coal production, currently
some 6.6 million b/doe, represents about 22 percent of
total Soviet primary energy output. Net coal exports
account for less than 2 percent of the coal mined. We
anticipate that coal production and exports will re-
main near current levels throughout the decade, but
rising output will be accompanied by a degradation in
the energy content of the coal.
Hard Currency Trade
Foreign trade is not expected to boost the Soviet
economy in the 1980s as it did in the 1970s. At that
time, fast-rising energy and gold prices and the rapid
growth of arms sales enabled the Soviets to increase
real hard currency imports at an average rate of more
than 20 percent a year. Through the 1980s, prices are
likely to be far more stable and the volume of exports
is likely to rise more slowly.
The real value of both fuel and nonfuel exports is
assumed to grow at about 1 percent a year over the
rest of the decade. Fuels, therefore, will continue to
account for about two-thirds of export earnings, with
the real price of energy assumed to remain roughly
constant. The earnings mix, however, is expected to
change, with:
? Earnings from oil sales declining about 45 percent
in constant dollars.
? Earnings from gas sales rising by 180 percent in real
terms, making gas the most important Soviet hard
currency export.
We estimate that real exports of other commodities
will grow very little and that earnings from gold and
arms sales will remain stagnant in real terms.
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Real import growth will depend on the need to buy
grain and other farm products and on policies and
opportunities regarding the purchase of foreign ma-
chinery, high-technology equipment, steel, and other
investment goods. Assuming rising domestic grain
production, unchanged meat production policies, and
a continuation of low real grain prices in the world
market, we project that the real value of annual grain
imports will remain well below the 1981-82 level for
the rest of the decade, although grain imports may
reach 30 million tons a year by 1990. The Soviets will
probably need to import more investment goods,
however, because of their growing desire to raise 25X1
industrial productivity, even though machinery im-
ports from the West can have, at best, only a modest
impact on overall growth
Because real hard currency earnings are likely to
grow slowly, if at all, during the rest of the decade,
real growth of imports would require increased use of
foreign credits and a growing hard currency debt. It
may well be difficult for Soviet leaders to accept these 25X1
conditions. Hence, import growth in real terms over
the next seven years will probably be well below the
average rate of the 1970s. Even. a modest goal of 2
percent a year real growth for all hard currency
imports-a figure we used in our baseline projec-
tions-would cause the trade deficit to grow 40
percent in constant dollars by 1990. Real credit
drawings could remain fairly constant over the next
several years but would escalate quickly toward the
end of the decade to nearly twice their current level.
Over the same time period, the real hard currency
debt would increase by one-third. The debt service
ratio, however, would remain roughly the same for
most of the decade and would still be only about 25
percent in 1990.
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Figure 6
Hard Currency Trade
0 1984 85 86 87 88 89 90
a Includes upward adjustment for unrecorded expenditures such as aid to
Poland and intra-CEMA trade.
This situation could be strongly affected by Soviet
grain output and by the world energy situation. A
string of poor harvests, necessitating larger grain
imports than we here envisage, could add billions of
dollars a year to Soviet hard currency needs or force
the redirection of imports from other commodities to
grain. Any increase in imports would have to be met
through additional borrowing (causing foreign debt to
rise even more) or at the expense of critical investment
good imports (retarding even more the sluggish
growth of the Soviet economy). On the other hand, an
upturn in energy prices and demand-say, because of
an expansion of the Middle East conflict-could
drastically increase revenues from fuel exports. This
could eliminate the need for most of the projected
hard currency credit drawings, thus causing foreign
debt to decline sharply by 1990. Or the Soviets could
use the increased revenues to raise imports of needed
investment goods, thus fostering industrial and energy
growth.
Debt service
Net borrowing
b Includes merchandise exports, gold sales, arms sales, and net earnings on
invisibles.
Energy Availability
Overall Soviet economic growth may have suffered
from the slower growth in energy production that
began in the late 1970s. Since 1976, frequent reports
have told of power outages and fuel shortages. As a
result, output of cement, chemicals, food, and other
commodities has been impeded. Energy quotas have
been extensively imposed on industrial ministries and
factories to cope with electric power shortages.' More-
over, power shortages in
the late 1970s cost an average of 1.7 billion rubles
annually in damaged equipment and disrupted proc-
esses. We expect this problem to worsen in the 1980s
and beyond.
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To minimize these shortages, the USSR will give
priority to energy investment. It has grown faster than
overall Soviet investment since 1979, and this trend
will continue through the decade. In the 1981-85
period, the Soviets plan to increase energy investment
by 50 percent, boosting its share of all new industrial
investment to more than one-third. (Overall invest-
ment is slated to grow by roughly 10 percent.)
The Soviets are facing increasingly difficult invest-
ment choices. The rising cost of this investment will
strain the economy by "crowding out" investment in
other key sectors. The energy industry already con-
sumes 65 percent of Soviet pipe production, more than
15 percent of machinery output, and substantial
shares of other sector production. As energy produc-
tion costs increase, the investment burden of rising
energy production will grow over time. One Soviet
energy expert estimates that a 2- or 3-percentage-
point increase in energy's share of investment could
lower overall economic growth by 0.1 to 0.15 percent-
age point and the consuming sector's share by 0.3 to
0.4 percentage point. On the other hand, it will be
difficult to slow the pace of energy investment, given
the growth of energy demand by other productive
sectors.
Given the impact of rising energy costs in the 1980s
and the potential impact of energy shortfalls, the
Soviets may emphasize conservation and energy effi-
ciency, especially later in the decade. If effectively
implemented, such a policy could minimize shortfalls.
'Results could be achieved more quickly if the govern-
ment gave a high priority to energy conservation and
consequently were willing to sacrifice other economic
objectives. We estimate that progress in energy con-
servation will be slow. The Soviets know the potential
benefits of using more energy-efficient equipment and
structures, but they have trouble realizing this poten-
tial. Energy efficiency is only one (and by no means
the most important) of the many goals set for Soviet
machinery producers and builders. Managers incorpo-
rate design improvements slowly, so as not to risk
failure to meet production targets
Moreover, equipment continues to be used as long as
it can be repaired. The average annual retirement rate
of Soviet capital stock has been about 1.5 percent, less
than half that of normal Western practice; and, in
contrast to Western experience, no major Soviet
industry has modernized its entire establishment with
new, more energy-efficient equipment. If the govern-
ment were willing to push it, a more rapid retirement
of outmoded equipment would reduce energy require-
ments more rapidly-but at a cost of slower economic
growth in the short-to-intermediate term.
We have examined two additional scenarios (figure 7),
which differ from the baseline case in our forecasts
for oil, gas, and coal production and our estimates of
the investment necessary to achieve those output
levels. For this study, we set production and invest-
ment for the oil, gas, and coal sectors at other
"reasonable" levels-below and above our baseline
estimates. For example, we assumed that oil produc-
tion by 1990 would be 11 million b/d in the low-
energy scenario and 12 million b/d in the high-energy
scenario, instead of the 11.5 million b/d used in our
baseline case. Based on our assessment of Soviet
energy demand in the 1980s, both scenarios assume
that most of the adjustment in energy availability is
made in the export sector. Therefore, the impact on
the domestic economy is rather small in either case.
By 1990, total GNP is 6 billion rubles (or about 1
percent) higher in the high-energy case than in the
low-energy case, industrial investment is 12.4 percent
higher, and the industrial growth rate is four-tenths of
a percentage point higher. As noted above, most of the
impact will be felt in the export sector, where the
additional energy exports (principally oil) associated
with the high-energy scenario would boost export
earnings in 1990 by more than $5 billion over the
earnings in the low-energy scenario (that is, from $8.3
billion to $13.5 billion).
If the Soviets could improve energy efficiency suffi-
ciently to remove the energy constraint, then growth
prospects would improve. The GNP growth rate, for
example, would be about 2 percent in the 1986-90
period, up from 1.6 percent in the baseline case. F_
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Figure 7
Energy Scenarios, 1984-90
Effect of Low and High Energy Production
on Selected Economic Aggregates
Percent
Average Annual Growth
GNP Industry
0 0
Baseline projection of oil production (11.5 million b/d in 1990)
? Low-production scenario (11.0 million b/d in 1990)
? High-production scenario (12.0 million b/d in 1990)
We assume that Soviet economic planners will
squeeze the consumption sector hard in order to
allocate sufficient investment to energy. By 1986-90,
even in the low-energy scenario, the annual growth
rate of per capita consumption is reduced to less than
1 percent, down from an average of 2.3 percent in the
.1970s. Given the slowdown in economic growth, the
Soviets will be hard pressed to maintain consump-
tion's share of GNP.
Other Factors Influencing Economic Growth
Agriculture. Conditions and actions taken in the
agricultural sector strongly affect year-to-year growth
figures for the Soviet economy. In recent years, bad
weather in the main grain-growing areas has caused
output to run well below trend levels.6 Our baseline
projection of Soviet agriculture assumes a return to
more normal weather conditions for the rest of the
0
a Utilized (active) capital.
decade. Continuing unfavorable conditions could keep
grain output below these trend expectations, while
favorable weather during the rest of the 1980s would
cause it to outrun them.
The implications of these possibilities were explored in
two scenarios (figure 8). One assumes grain output to
be 10 percent below trend levels for the rest of the
decade (as could be the case in the event of less
favorable weather) and the other 15 percent above
(which could result from more favorable weather). We
believe these scenarios are plausible because grain
production averaged 9 percent below trend levels from
1979 through 1982 and. 16 percent above from 1976
through 1978. Historically, each percentage point of
deviation of grain output from trend levels is associat-
ed with a change in total Soviet agriculture output of
0.4 percentage point in the same direction. Our
analysis shows that almost all of this impact is passed
along to Soviet consumers.
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Figure-8
Agriculture Scenarios, 1984-90
Effect of Low and High Assumptions
About Grain Production
Percent
Average Annual Growth
Per Capita Consumption Grain Output
-2 -2
- Baseline projection (grain output follows 1962-80 trend)
Grain output 10 percent below trend
Grain output 15 percent above trend
In the short run, rates of growth of agricultural output
and consumption, as well as labor and capital produc-
tivities in the agricultural and consumer goods sec-
tors, can be greatly affected by shifts in weather
conditions. In the long run, these rates are more
affected by other factors underlying agricultural pro-
duction-such as capital formation, technical change,
and institutional developments.
If the weather were favorable, the grain output in
1990 would be 30 million tons greater than the trend
level for that year. This would be enough to meet
almost all Soviet needs (unless Soviet planners chose
to expand the nation's grain reserves). Under these
circumstances, grain import requirements would be
well below the levels indicated by our baseline condi-
tions. Actual imports, however, could still be high,
because of long-term grain agreements. Existing
agreements obligate the USSR to purchase at least 20
million tons a year until the second half of the decade.
If the weather were unfavorable, Soviet grain output
would be more than 20 million tons below the trend
level in 1990. This would require substantial imports,
but the increase would be constrained by the grain-
handling capabilities of Soviet ports and by policy
considerations. Additional grain imports could in-
crease hard currency credit drawings, accelerating the
growth of debt to Western countries. The Soviets 25X1
could decide, however, to offset some of the cost of
grain imports by reducing imports of other commod-
ities; under similar conditions in 1981, they chose to
reduce imports of machinery from hard currency
countries.
Trade. If unfavorable grain-growing conditions re-
quired a long-lasting reduction of hard currency
imports, could that reduction harm Soviet industrial
investment and accelerate the decline in Soviet pro-
ductivity and economic growth? Two scenarios ex-
plore this question (figure 9). In the first, the real
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Figure 9
Trade Scenarios, .1984-90
Effect of Low and High Machinery Import Levels
on Selected Economic Aggregates
Percent
Average Annual Growth
GNP
20
0 0
Baseline projectionb
? Low rate c
? High rated
a The debt service ratio is calculated as repayments plus interest over the
sum of exports, gold sales, and arms sales.
b Baseline case: The real value of total hard currency imports grows at
2 percent per year and that of hard currency machinery imports is held
constant at the 1982 level.
C Low rate: the real value of hard currency machinery imports is held
constant at the low 1981 level and that of total hard currency imports is
reduced accordingly.
d High rate: The real value of total hard currency imports grows at
3 percent per year, the entire increase representing additional machinery
imports.
value of hard currency machinery imports is assumed
to return to the low 1981 level and remain there for
the rest of the decade. In the second, the real value of
total hard currency imports is assumed to grow at a
rate of 3 percent a year (50 percent faster than in the
baseline projection), the additional imports being ac-
counted for by purchases of machinery. We assume in
both scenarios that the shift in machinery imports is
not offset by changes in the levels of other types of
imports and thus comes to affect hard currency credit
drawings and debt.
Our model suggests that these shifts would have only
a small impact on total investment, consumption, and
economic growth. This is because, in aggregate terms,
hard currency machinery imports are relatively small.
In the early 1980s they were only one-third of the
level of machinery imports from Communist coun-
tries, some 7 percent of the total output of the Soviet
machine-building and metalworking sector, and only
about 3 percent of the level of total investment. One
should keep in mind, however, that hard currency
machinery imports do have a special value for the
Soviets; they are willing to use their scarce hard
currency and increase their hard currency debt to
obtain them. These imports may be critical in a
number of key areas, such as energy production,
where their effect on the Soviet economy may well be
greater than our model results indicate.'
' The valuation of hard currency imports is a controversial issue.
The results from our model-which does not distinguish (in quality
or productivity terms) between hard currency machinery imports,
Communist country machinery imports, and machinery produced
in the USSR-may understate the value of hard currency machin-
ery imports to the Soviets. Nevertheless, we judge that the model's
valuation of these imports relative to the larger economic aggre-
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Figure 10
Production Scenarios, 1984-90
Effect of Increased Productivity
on Selected Economic Aggregates
Percent
Average Annual Growth
GNP
4
0
a Utilized (active) capital.
0
? Baseline projection
? Assumption of increased productivity
Our analysis suggests that changes in hard currency
machinery imports could have a significant impact on
the Soviet hard currency payments position. In the
scenario with lower import growth, the 1990 trade
deficit is 20 percent below the deficit in our baseline
projection, debt service payments and the debt service
ratio are more than 50 percent lower, and net borrow-
ing is two-thirds lower. The gross debt is one-third
lower. In the scenario with greater imports of hard
currency machinery, the trade deficit is more than 25
percent higher, debt service payments one-third great-
er, and net borrowing two-thirds more than in the
baseline case. In 1990 the gross debt is more than $70
billion and the debt service ratio is 36 percent. Soviet
leaders probably would avoid this second scenario
unless they were driven to it by a critical need for
specific key import items.
Productivity. Past Soviet efforts to boost output fo-
cused on increasing inputs of capital and labor. For a
number of reasons, the difficulty of continuing this
approach has grown substantially. Emphasis now
appears to be focused on:
? Improving the productivity of labor, initially
through greater discipline of the work force and
eventually through better training.
? Increasing the efficiency of capital investments,
with special attention to the completion of projects
already under way and better maintenance of the
existing capital stock.
This emphasis creates its own problems. Even if it can
be made to work, would it have an appreciable impact
on the growth of the Soviet economy?
Putting aside the question of feasibility-the cost 25X1
involved, the implications for other sectors, or the
speed with which it could be effected-we have
examined the implications of improved productivity
by assuming.the Soviet economy to operate in the
1980s as it did before 1975. (Econometric analysis of
the various sectors of the industrial economy reveals
that the impact of additional investment on labor
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Figure 11
Comparison of 1982 and 1983 Baseline Projections,
1984-90
Average Annual Growth
GNP-
5
0
1982 projection
711983 projection
0 0
a Defense expenditures are an input to the model, not a projection. In 1982
they were assumed to be growing at 4 percent per year, and in 1983 the
rate was assumed to be 2 percent. -
productivity dropped after 1975.) A return to pre-
1975 productivity growth trends would help the Soviet
economy grow faster by increasing the gain in labor
productivity derived from increases in the stock of
machinery and equipment.
If the Soviet industrial economy were operating as it
did before 1975, industrial output would be growing
at almost twice its actual rate. This growth would
slow down considerably in the last half of the decade
but would still remain well above the growth we now
project for that period. As a result, 1990 machinery
output would be 10 to 15 percent higher, total invest-
ment almost 10 percent greater, and consumption
about 7 percent more than is now projected. The
economy's total stock of capital would grow faster
under these conditions than in the baseline case,
although our results suggest that an energy shortfall
could retard the growth rate of capital stock actually
used in production.
To approach the growth rates of our improved produc-
tivity scenario within the next five to seven years, the
Soviets would almost certainly have to make very
ambitious and incisive reforms across a wide spectrum
of policy areas-including investment, labor, trade,
and economic management-on a scale that we con-
sider unlikely for the Soviet bureaucracy.
Comparison of 1982 and 1983 Projections
The 2-percent average annual growth of GNP over
the 1980s in our 1983 projections is not significantly
different from the growth rate that we projected in
1982, although it reflects new defense assumptions
and our current judgments that oil production will not
begin to decline until after 1985 and will fall less far
by 1990. The difference in GNP distribution is more
noticeable. Our assumption of 2-percent average an-
nual growth in defense expenditures (versus 4 percent
last year) and slower growth in military hardware
procurement has the effect of releasing resources for
other uses. Investment and consumption in the 12th.
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Figure 12
Alternative Allocation Scenarios, 1984-90
Effect of Increasing the Priority of the Military
or of Consumer Welfare
Percent
Average Annual Growth
GNP
5 .
Baseline projection
Increased orientation toward consumer welfare
Increased orientation toward the military
Five-Year Plan period both benefit, and per capita
consumption no longer shows the absolute decline
reflected in the 1982 projections.
The impact of the decreased drag on investment has
only a gradual positive effect on output growth in the
1980s. Nevertheless, production capacity is increased
somewhat because growth in the stock of plant and
equipment will eventually follow growth in the flow of
investment goods. Increases in investment and pro-
duction capacity in the 1980s could position the
economy. better for improved growth in the 1990s.
The implications of less stringency for the consumer,
in the form of continuing (though modest) improve-
ments in average living standards, would be a boon for
the Soviet leadership. Gains could include a positive
effect on labor productivity, as more goods and serv-
ices continue to be available in exchange for wages
The growth rate for defense expenditures that we
currently assume is approximately the same as our
projected growth rate for the economy as a whole.
Therefore, in our current baseline scenario the de-
fense burden remains at about 14 percent throughout
the decade instead of increasing (as it did in our 1982 25X1
calculations) to 15 percent in 1985 and 17 percent in
1990.
Scenarios Favoring the Consumer or the Military
The estimate of Soviet economic prospects presented
in our baseline depends in part on a number of key
judgments about the future Soviet economic environ-
ment and policy decisions. We have also examined
two cases (figure 12) in which we assume Soviet
leaders decide to distribute the economy's growth
increment in a manner different from that assumed in
our baseline case. In one we postulate a consumer
welfare, in the other a military, orientation. Neither
policy option alters our baseline forecast of GNP
growth by as much as one-fourth of a percentage
point per year during the decade, but the outcomes for 25X1
the claimants on national output are significantly
0
aulilized (active) capital.
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different. The results are in accord with our observa- their sales of oil to the West for the hard currency
tion that, leaving aside consideration of fundamental necessary to pay for the machiner . Oil sales to
economic reform, Soviet policy choices are more likely Eastern Europe would be reduced
to affect the distribution of national output than to
affect its growth during this decade. An accelerated arms buildup would be costly. GNP
Consumer Welfare Orientation. We assume that the
aim of a welfare-oriented policy in the USSR would
be to move the economy onto a higher growth path by
providing the material incentives needed to spur pro-
ductivity. Our assumptions for this case include' in-
creased shares of investment for housing, light indus-
tries, and agriculture-sectors that produce goods for
which there is much unsatisfied demand-and for
energy. For this scenario, we assume that defense
spending remains flat, to allow for increased total
investment, and that the volume of food and other
consumer goods imported from the West is increased.
As a result, GNP growth is slightly lower than in the
baseline case during the last half of the decade,
because of the shift of resources away from the sectors
that produce investment goods-machinery and con-
struction. There are substantial gains for the consum-
er, however. Per capita consumption growth is main-
tained at the 1970s level through the middle of the
decade and is twice as great through 1990 as the
growth in our baseline case.
Military Orientation. If the Soviet leaders felt that
the challenge by the West to the nation's security
interests required a stronger response, they might
accelerate the buildup of their military forces and
choose economic policies with a military orientation.
To increase. military production in the long term, they
would step up investment in energy, industrial ma-
terials, and the investment goods sectors. For this
scenario, we assume defense spending would grow at 5
percent per year-a rate slightly higher than the
historical rate of the 1966-76 period. More repressive
domestic measures would be likely, and we assume a
mandatory return to a longer workweek, which in-
creases the labor input 'to the economy. We also
assume that a defense spending growth rate of about 1
percent per year above the historical level would not
acutely alarm Western nations. Therefore, the Soviets
could increase their machinery imports from the West
to meet the greater need for investment goods and
growth would increase slightly over that in the base-
line case, primarily as a result of the extra investment
(and subsequent production) in the energy and defense
industries. But the defense burden would escalate,
forcing down the per capita consumption growth rate
by nearly half a percentage point a year on the
average during the latter half of the decade. Despite a
somewhat higher overall rate of investment, important
civilian sectors (especially consumption goods and
services) would suffer, as an increasing share of new
plant and equipment went to defense industries. Fur-
thermore, the combination of higher take-home pay
(which we postulate as resulting from a longer work-
week) and fewer consumer goods could increase the
repressed inflation in the USSR and lead to popular
discontent. Under this scenario, the share of GNP
going to defense would reach 18 percent by 1990, a
figure about one-third higher than the average de-
fense burden during the Soviet military buildup of
1966-76.
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Appendix
Selected Tables From the
Baseline Projections
Table 1
Selected Key Assumptions
Population (million persons)
274.6
276.8
278.8
280.7
282.7
284.6
286.6
Total defense (billion 1970 rubles)
79.7
81.3
82.9
84.6
86.3
88.0
89.8
Machinery procurement (billion
1970 rubles)
21.1
21.1
21.5
21.9
22.3
22.8
23.3
Manpower (million persons)
5.8
5.8
5.8
5.8
5.9
5.9
5.9
Oil production (million barrels
per day)
12.4
12.5
12.3
12.0
11.8
11.7
11.5
Hard currency oil exports
(million b/d)
1.0
0.9
0.9
0.8
0.7
0.7
0.6
Oil exports to Communist
countries (million b/d)
1.9
1.9
1.8
1.8
1.7
1.6
1.5
Gas production (billion cubic
meters)
556.6
590.0
614.0
638.9
664.9
691.9
720.0
Hard currency gas exports
(billion cm)
30.7
42.1
53.9
55.9
56.3
56.7
56.7
Gas exports to Communist
countries (billion cm)
41.0
45.0
50.0
54.0
54.0
54.0
54.0
Coal production (million metric
tons)
719.2
720.0
724.9
729.9
734.9
739.9
745.0
Nonenergy hard currency exports
(billion US $)
8.1
8.7
9.5
10.2
11.0
12.0
12.9
Gold sales (billion US $)
4.2
4.4
4.9
5.2
5.5
5.9
6.3
Sales volume (tons)
312.4
306.5
312.9
310.9
308.1
310.1
309.8
Gold price (US $ per troy ounce)
422.0
451.0
483.0
517.0
553.0
591.0?
633.0
Arms sales (billion US $)
5.1
5.4
5.8
6.2
6.6
7.1
7.6
Grain production (million tons)
211.5
215.0
216.6
218.2
219.8
221.4
223.0
Note: This table shows the assumed values for the key input
variables in the SOVSIM model of the Soviet economy. Along with
the equations in the model, these variables are the basis for the
estimates presented in later tables.
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Table 2
New Fixed Investment: Percent Distribution
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Industry
39.3
40.4
41.6
42.7
43.9
45.0
46.2
Industrial materials
8.4
8.4
8.4
8.4
8.4
8.4
8.4
Oil
7.1
7.6
8.7
9.8
10.9
12.0
13.1
Gas
3.6
4.3
4.3
4.3
4.4
4.4
4.4
Coal
1.7
1.7
1.7
1.8
1.8
1.9
1.9
Electric power
3.2
3.2
3.3
3.3
3.4
3.4
3.5
Machine building and metalworking
9.4
9.5
9.6
9.7
9.8
9.9
10.0
Chemicals
2.3
2.2
2.1
2.1
2.0
2.0
1.9
Consumer goods
3.5
3.5
3.4
3.3
3.2
3.1
3.0
Construction
3.8
3.7
3.6
3.5
3.5
3.4
3.3
Agriculture
19.2
19.0
18.9
18.8
18.7
18.6
18.5
Transportation and communications
12.0
12.0
11.6
11.2
10.8
10.4
10.0
Trade and services
12.9
12.5
12.3
12.1
11.9
11.7
11.5
Housing
12.7
12.4
12.0
11.6
11.3
10.9
10.5
Note: This table shows the investment distribution assumed for the
baseline case.
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onnaennal
Table 3
Sources of GNP (Factor Cost)
GNP
578.0
590.1
598.9
608.3
618.1
628.6
639.3
Total industry
210.2
215.2
219.0
223.3
228.1
233.2
238.4
Industrial materials
48.3
49.2
49.9
50.7
51.5
52.4
53.3
Oil
9.5
9.6
9.4
9.3
9.1
9.0
8.8
Gas
3.5
3.7
3.8
4.0
4.2
4.3
4.5
Coal
6.2
6.2
6.2
6.3
6.4
6.4
6.5
Electric power
16.7
17.1
17.8
18.4
19.2
20.0
20.8
Machine building and metalworking
82.1
84.9
87.1
89.6
92.4
95.3
98.3
Chemicals
15.1
15.2
15.3
15.4
15.5
15.7
15.8
Consumer goods
28.9
29.2
29.4
29.6
29.9
30.1
30.4
Construction
44.0
44.6
44.9
45.2
45.6
46.1
46.5
Agriculture
87.3
90.0
91.7
93.4
94.9
96.4
98.0
Transportation and communications
66.5
68.0
68.7
69.6
70.7
71.9
73.2
Trade and services
159.9
162.4
164.6
166.7
168.8
170.9
173.0
Military personnel.
8.3
8.4
8.4
8.3
8.4
8.4
8.4
Residual
1.6
1.6
1.6
1.7
1.7
1.7
1.8
Note: This table presents the key SOVSIM production estimates.
Because weather conditions cannot be predicted, agricultural pro-
duction for 1984 and following years reflects crop yields estimated
on the basis of trend lines. The measure of agriculture is adjusted
for both intra-agricultural use of farm products and purchases by
agriculture from other sectors.
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Table 4
Average Annual Growth of GNP (Factor Cost)
by Five-Year Plan Period
GNP
5.3
3.7
2.7
2.4
1.6
Total industry
6.3
5.9
3.2
2.3
2.1
Industrial materials
5.0
4.4
1.2
1.6
1.6
Oil
7.8
6.8
4.2
0.6
-1.6
Gas
9.2
7.9
8.5
6.3
4.1
Coal
1.6
2.3
NEGL
0.5
0.8
Electric power
7.9
7.0
4.5
3.3
4.0
Machine building and metalworking
6.9
8.0
5.0
3.3
3.0
Chemicals
8.9
8.6
3.6
1.7
0.7
Consumer goods
6.4
3.4
1.8
1.2
0.8
Construction
5.8
5.6
2.3
1.6
0.9
3.5
-2.3
0.5
4.0
1.7
Transportation and communications
6.9
6.6
3.7
2.3
1.5
Trade and services
4.9
3.7
2.8
2.0
1.3
Note: This table translates the production estimates of table 3 into
average annual growth rates for 1981-85 and 1986-90. Although
these growth rates are more representative of trends than individual
annual growth rates are, they are very sensitive to the base years.
Thus, the growth rate for GNP in 1981-85 will somewhat overstate
the trend because poor weather in 1980 affected agriculture
adversely, resulting in a below-trend GNP for that year.
Table 5
Uses of GNP (Factor Cost)
GNP
578.0
590.1
598.9
608.3
618.1
628.6
639.3
Consumption
298.6
305.0
310.1
314.5
319.2
323.6
328.5
Investment
174.1
179.5
182.7
186.7
191.1
196.1
201.4
New fixed investment
139.7
143.9
146.5
149.6
153.1
157.2
161.4
Defense
79.7
81.3
82.9
84.6
86.3
88.0
89.8
Government administration
15.7
15.9
16.1
16.2
16.4
16.6
16.8
Government research and development
0.9
0.8
0.8
0.7
0.7
0.7
0.6
Note: SOVSIM estimates consumption as the residual end use after
subtracting investment and defense and other government expendi-
tures from GNP. Investment is estimated as the residual in an
investment goods balance that takes into account production of
investment goods and such claims on this production as consumer
durable goods and military procurement of machinery (including
weapons). Because of data constraints, SOVSIM must work with
two measures of new fixed investment: (1) a factor cost measure
that fits in with SOVA's reconstruction of Soviet GNP and (2) the
official Soviet measure, which is used in tracing investment flows to
producing sectors and housing. This table presents estimates of the
factor cost measure. Defense is an assumed variable, while the
estimates for government administration and research and develop-
ment are based on assumed shares of GNP. The uses of GNP
shown do not sum to the total shown because there is a small
residual that includes net exports and inventory change.
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Table 6
Average Annual Growth of GNP Uses (Factor Cost)
by Five-Year Plan Period
GNP
5.3
3.7
2.7
2.4
1.6
Consumption
5.3
3.5
2.8
2.0
1.5
Per capita consumption
4.3
2.6
1.9
1.1
0.8
Investment
6.1
5.7
4.3
3.2
2.3
New fixed investment
6.7
5.0
3.8
3.2
2.3
Defense
4.7
4.4
2.7
2.2
2.0
Government administration and research and
development
8.2
3.3
1.4
1.1
0.7
Table 7
New Fixed Investment
Total
147.2
151.8
154.7
158.2
162.1
166.4
171.0
Industry
57.8
61.3
64.3
67.6
71.1
75.0
79.0
Industrial materials
12.4
12.8
13.0
13.3
13.6
14.0
14.4
Oil
10.5
11.5
13.5
15.5
17.7
20.0
22.4
Gas
5.3
6.5
6.7
6.9
7.1
7.3
7.5
Coal
2.5
2.6
2.7
2.8
2.9
3.1
3.2
Electric power
4.7
4.9
5.0
5.3
5.5
5.7
6.0
Machine building and metalworking
13.8
14.4
14.9
15.3
15.9
16.5
17.1
Chemicals
3.5
3.3
3.3
3.3
3.3
3.3
3.2
Consumer goods
5.2
5.3
5.3
5.2
5.2
5.2
5.1
Construction
5.6
5.6
5.6
5.6
5.6
5.6
5.6
Agriculture
28.3
28.8
29.2
29.7
30.3
31.0
31.6
Transportation and communications
17.7
18.2
17.9
17.7
17.5
17.3
17.1
Trade and services
19.0
19.0
19.0
19.1
19.3
19.5
19.7
Housing
18.7
18.8
18.6
18.4
18.2
18.1
18.0
Note: The estimates of total new fixed investment are for the
official Soviet concept of such investment. The estimated flows of
investment goods to producing sectors and housing depend directly
on this total, which is calculated in the model, and the allocation
pattern assumed in table 2.
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Table 8
Hard Currency Import Capacity
Billion US $
(except where noted)
Import capacity
32.1
35.0
38.2
41.7
45.5
49.7
54.2
Total exports
24.9
28.8
32.5
34.3
35.9
37.6
39.2
Nonfuel exports
8.1
8.7
9.5
10.2
11.0
12.0
12.9
Oil exports
11.4
11.4
11.3
10.9
10.8
10.5
10.0
Price (US $ per barrel)
31.0
33.2
35.5
38.0
40.7
43.5
46.6
Volume (million b/d)
1.0
0.9
0.9
0.8
0.7
0.7
0.6
Gas exports
5.2
8.4
11.5
12.7
13.7
14.8
15.8
Price (US $ per barrel oil
equivalent)
28.0
33.0
35.3
37.8
40.4
43.2
46.3
Volume (million b/d oil
equivalent)
0.5
0.7
0.9
0.9
0.9
0.9
0.9
Arms sales
5.1
5.4
5.8
6.2
6.6
7.1
7.6
Gold sales
4.2
4.4
-4.9
5.2
5.5
5.9
6.3
Price (US $ per troy ounce)
422.0
451.0
483.0
517.0
553.0
591.0
633.0
Volume (tons)
312.4
306.5
312.9
310.9
308.1
310.1
309.8
Credits
6.6
6.4
5.8
7.4
9.6
12.9
17.4
Debt service
6.8
8.0
8.7
9.1
9.9
11.6
13.9
Unrecorded expenditures
3.7
4.0
4.3
4.6
4.9
5.3
5.6
Note: Import capacity is defined as the level of imports that could
be afforded, given earnings, credits, and debt service. The order of
the line items follows the SOVSIM calculations: import capacity
equals exports plus arms and gold sales plus credit drawings plus
miscellaneous other net earnings (not shown), less debt service and
assumed unrecorded expenditures.
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Table 9
Hard Currency Balance of Payments
Trade balance
-7.1
-6.2
-5.7
-7.4
-9.6
-12.1
-15.0
Exports
24.9
28.8
32.5
34.3
35.9
37.6
39.2
Imports
32.1
35.0
38.2
41.7
45.5
49.7
54.2
Gold sales
4.2
4.4
4.9
5.2
5.5
5.9
6.3
Net interest earned
-1.6
-2.1
-2.3
-2.4
-2.6
-3.2
-4.1
Other earnings
6.4
6.9
7.5
8.1
8.8
9.5
10.3
Current account balance
2.0
3.0
4.4
3.5
2.1
0.1
-2.5
Net borrowing
2.5
1.8
0.8
2.0
3.8
6.1
9.2
Net change in assets
0.7
0.8
0.8
0.9
1.0
1.0
1.1
Capital account balance
1.8
1.0
-0.1
1.1
2.8
5.1
8.1
Unrecorded expenditures
3.7
4.0
4.3
4.6
4.9
5.3
5.6
Note: These estimates are projected from historical base years of
1981 or 1982. Therefore, the projections shown here and in table 10
for 1984 and 1985 in particular do not capture the recent improve-
ment in Soviet foreign trade. However, the differences do not
substantially change the longer term trends depicted here.
Table 10
Soviet Debt to Western Nations
Billion US $
(except where noted)
Credit drawings
6.6
6.4
5.8
7.4
9.6
12.9
17.4 .
Debt service
6.8
8.0
8.7
9.1
9.9
11.6
13.9
Repayments
4.1
4.6
5.1
5.3
5.9
6.8
8.2
Interest
2.7
3.4
3.6
3.8
4.1
4.8
5.8
Amount available to offset trade
deficit
-0.2
-1.6
-2.9
-1.8
-0.3
1.3
3.4
Gross debt (end of year)
26.3
28.1
28.8
30.8
34.6
40.8
50.0
Assets (end of year)
11.2
12.0
12.9
13.8
14.7
15.8
16.9
Net debt (end of year)
15.1
16.1
16.0
17.1
19.9
25.0
33.1
Total hard currency earnings
34.1
38.0
42.6
45.2
47.6
49.8
51.7
Debt service ratio (percent)
19.9
20.7
20.2
20.0
20.7
22.9
26.3
Note: The debt service ratio is calculated as repayments plus
interest over the sum of exports, gold sales, and arms sales (table 8).
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