## The Ararat Fiscal Strategy Model: A Structural Framework for Fiscal Policy Analysis in Armenia

_IMF Working Papers, June 10, 2022_

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## Bibliographic details
- Authors: Victoria Babajanyan, Daniel Baksa, Martin Fukac, Eduard Hakobyan, Arshaluys Harutyunyan, Narek Karapetyan, Babken Pashinyan, Garik Petrosyan, Luis-Felipe Zanna
- Published: June 10, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400210754.001

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### Model description and purpose
- The Ararat Fiscal Strategy Model (AFSM) is a structural, New-Keynesian, DSGE, small open economy model.
- AFSM contains a rich fiscal block that includes several expenditure and revenue instruments, and types of debt.
- AFSM is a formal part of the Ministry of Finance analytical toolkit for macroeconomic fiscal policy scenario analysis, feeding into policy discussions, budget planning, and the Medium-Term Expenditure Framework.

### Key applications documented
- Application 1: Assessment of the macroeconomic impact of the “first wave” of the Covid-19 pandemic on the Armenian economy, including mitigating effects of policy responses.
- Application 2: Analysis of the 2018 public investment under-execution, highlighting the role of public investment efficiency on macroeconomic and fiscal outcomes.

### Main quantitative findings (AFSM simulations)
- Potential impact in 2020:
  - Decline in GDP of 12.9 percent.
  - Decline in consumption of 11.7 percent.
- Cumulative output loss:
  - Cumulative loss of GDP of 38 percent for the period 2020-2023.
- Fiscal outlook deterioration:
  - Public debt-to-GDP ratios could increase by 18.8 percentage points over 2020-23.
- Policy response effectiveness:
  - A package of counter-cyclical fiscal measures of 3.6 percent of GDP was estimated to cushion the 2020 GDP decline by almost 2 percentage points and to protect jobs.

### Policy implications and recommendations
- Use AFSM as an operational tool within the Ministry of Finance for:
  - Macroeconomic fiscal policy scenario analysis.
  - Informing budget planning and the Medium-Term Expenditure Framework.
- Deploy counter-cyclical fiscal measures in crisis episodes:
  - A counter-cyclical package sized at 3.6 percent of GDP materially reduced the simulated 2020 GDP decline and supported employment.
- Improve public investment efficiency:
  - AFSM application on 2018 under-execution underscored that improving the efficiency of public investment yields positive macroeconomic and fiscal effects.

### Subject tags and technical keywords (as used in the source)
- Subjects: Consumption, Current spending, Expenditure, Fiscal policy, National accounts, Public debt, Public investment spending
- Keywords: AFSM application, AFSM simulation, Armenia, Consumption, Covid-19, Current spending, DSGE model, financial programming, fiscal policy multiplier, fiscal rules, Global, overview of the Ararat Fiscal Strategy Model, Public investment spending, scenario analysis, shock decomposition, Structural model

*IMF Working Papers 2022, 118 (June 10, 2022).*

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_Source: https://www.imf.org/en/publications/wp/issues/2022/06/10/the-ararat-fiscal-strategy-model-a-structural-framework-for-fiscal-policy-analysis-in-519522_