Reducing migration if the UK leaves the European Union would be “catastrophic” for Scotland’s economy, a new Scottish government discussion paper has warned.

The discussion paper found that by 2040, lower migration alone could reduce Scotland’s real gross domestic product (GDP) by 4.5% — equivalent to a fall of almost £5 billion a year.

In a worst case scenario where migration is reduced to tens of thousands, the cost to the Scottish economy could be £10 billion per year by 2040, the paper said.

“The UK government’s policy of pursuing a reduction in net migration to only tens of thousands across the whole UK would be catastrophic for Scotland’s economy and do serious damage to our future prosperity,” said the Scottish government’s external affairs secretary Fiona Hyslop.

Scotland’s population projections show there is an “overwhelming case” for Scotland to have the power to tailor its own migration policy, Hyslop said.

With the number of deaths expected to outweigh the number of births for every year until 2040, “action is required to maintain and grow Scotland’s working age population to help support the welcome fact that people are living longer,” said the Scottish government.

Hyslop said: “In the absence of clarity from the UK government on what migration policy will be post-Brexit, this paper looks in some detail at Scotland’s population needs and how they can be achieved.

“It is clear that the UK government’s plans to reduce migration would not support Scotland’s economy or our population needs – all of Scotland’s population growth over the next 25 years is projected to come from migration.

“So this paper sets out what a devolved migration system could look like, and the principles we would follow.

“Inward migration does not just bring economic benefits. By welcoming people to live, work and study in Scotland we can strengthen our society and enrich our lives.

“Migrants contribute to our economy by bringing new skills and fresh approaches. Without their contribution Scotland’s economic growth will suffer.

“Scotland’s economy is heavily reliant on inward migration  …

“This paper demonstrates that it simply does not make sense to set arbitrary targets to reduce net migration, or to end free movement of people by leaving the single market.

“There is now an overwhelmingly strong case for Scotland to have the power to tailor its own migration policy to reflect its own unique circumstances.

“Indeed, there is a growing consensus that this is the only logical step in the face of UK government policy which is determined to restrict the number of people who can choose to make Scotland their home.”