Myroslav Prodan: Will the import substitution program be effective

At the end of May, the Cabinet of Ministers of Ukraine presented the State Program for Stimulating the Economy to overcome the negative effects caused by COVID-19. The program was developed to implement a comprehensive system of measures to stabilize the economy and increase employment through the preservation of existing jobs and the creation of new ones. Leading expert in taxation and customs affairs, former chairman of the State Fiscal Service of Ukraine Myroslav Prodan predicts whether this program will be effective.

He emphasized that international experts have long anticipated a global economic crisis. The COVID-19 pandemic has only accelerated its onset. Most sectors of the global economy are facing recession. There are sectors that have suspended their activities.

Myroslav Prodan believes that many analysts overestimate the impact of the epidemic on the Ukrainian economy and reminds that economic growth in Ukraine began to slow down even before the whole world learned about COVID-19 cases in China. The scale of the damage will be significant. Experts predict the losses will amount to 4 to 8% of GDP, which is much more than expected.

Returning to the Cabinet of Ministers’ Program, Prodan highlights two key directions proposed by the government: limiting import alternatives and supporting domestic producers. He is convinced that for the successful implementation of import substitution policy, certain conditions are necessary: concessional loans, subsidies, simplification of taxation, etc.

In his analysis, the expert emphasizes that there are areas of economic activities where a system of import substitution can be implemented partially. There are also those where import substitution cannot be realized. Import substitution is a program carried out at the expense of the country's internal resources. Whether it will be successful depends on the systemic internal policies of the state to protect national interests. The implementation of import substitution requires large-scale investments. However, many sectors of the economy have become uncompetitive. The Ukrainian government strictly limits imports but does not care about providing its producers access to WTO and WIPO resources, thus depriving them of financial resources and the latest technologies. Considering these facts, Myroslav Prodan believes that the import substitution policy in our country will not work.