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Victoria Babajanyan, Daniel Baksa, Mr. Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, and Luis-Felipe Zanna
This paper presents an overview of the Ararat Fiscal Strategy Model (AFSM), which is a structural, New-Keynesian, DSGE, small open economy model with a rich fiscal block that includes several expenditure and revenue instruments, and types of debt. The AFSM is now a formal part of the Ministry of Finance analytical toolkit to do macroeconomic fiscal policy scenario analysis, which feeds into policy discussions, budget planning, and the Medium-Term Expenditure Framework. The model was applied to assses the macroeconomic impact of the “first wave” of the Covid-19 pandemic on the Armenian economy, including the mitigating effects of policy responses. AFSM simulations revealed a potential severe impact in 2020, with declines in GDP and consumption of 12.9 and 11.7 percent, respectively, and a cumulative loss of GDP of 38 percent for the period 2020-2023. They also highlighted a significant fiscal outlook deterioration that would increase public debt-to-GDP ratios by 18.8 percentage points over 2020-23. The package of counter-cyclical fiscal measures of 3.6 percent of GDP, however, was estimated to cushion the 2020 GDP decline by almost 2 percentage points, as well as protect jobs. A second AFSM application related to the 2018 public investment under-execution showed the importance of improving the efficiency of public investment to have positive macroeconomic and fiscal effects.
Victoria Babajanyan, Daniel Baksa, Mr. Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, and Luis-Felipe Zanna

the government financial position would dramatically increase the debt burden and deplete the fiscal space—AFSM simulations suggested that debt-to-GDP ratios would increase by 18.8 percentage points in less than 5 years and stay at a higher level in the medium term. In the shock decomposition analysis, external shocks, as reflected by a contraction in foreign demand, remmitances, and tourism as well as an increase in the country risk premium, accounted for the biggest part of these macroeconomic effects and fiscal losses, relative to the domestic shocks— i.e., a

Victoria Babajanyan, Daniel Baksa, Mr. Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, and Luis-Felipe Zanna

feeds into policy discussions, budget planning, and the Medium-Term Expenditure Framework. The model was applied to assses the macroeconomic impact of the “first wave” of the Covid-19 pandemic on the Armenian economy, including the mitigating effects of policy responses. AFSM simulations revealed a potential severe impact in 2020, with declines in GDP and consumption of 12.9 and 11.7 percent, respectively, and a cumulative loss of GDP of 38 percent for the period 2020–2023. They also highlighted a significant fiscal outlook deterioration that would increase public