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Fiscal policy will be stimulating to counteract the effects of coronavirus (COVID-19)
28.07.2020
Fiscal policy will be stimulating to counteract the effects of coronavirus (COVID-19)

The Government approved and duly submitted to the National Assembly the State Medium-Term Expenditure Framework (MTEF) for 2021-2023. It envisages a comprehensive, realistic assessment of budgetary resources (revenues) in line with a sustainable macroeconomic environment; assessment of policy expenditures from the bottom up; ensuring the harmonization of available budgetary resources and required expenditures through appropriate mechanisms.

In the 2021-2023 Medium Term Expenditure Framework, the macroeconomic forecasts due to the coronavirus epidemic have been revised.

In particular:

  • World economy. Back in late 2019, it was predicted that the economies of more than 170 countries would grow in 2020. Meanwhile, along with the development of coronavirus (COVID 19) impact assessments, the economic growth forecasts of the same number of countries were revised downwards. Today, the whole world continues to suffer from the negative effects of the rapid spread of the epidemic. In these conditions, it is noteworthy that a significant decline is forecast for the economies of the partner countries of the Republic of Armenia, the significant negative impact of which on the economy of the Republic of Armenia is inevitable.
  • Economy of the Republic of Armenia. Under conditions of state of emergency and restrictions, both demand and supply are declining in Armenia. The branches of services, construction and processing industry suffered the most. In these conditions, for Armenia in 2020 an economic decline of 2.6% is expected, and an average economic growth of 6.1% in the medium term. At the same time, due to the great uncertainties of the spread and duration of the epidemic, the downward risks of economic growth prevail in the forecast horizon.

In order to adequately respond to economic developments, in 2020 and in the medium term, the following priorities have been set for fiscal policy:

  • Anti-periodic policy. In line with the system of fiscal rules, fiscal policy in 2020 will be stimulating to counteract the economic shock caused by the outbreak of the COVID-19 epidemic and the applied economic constraints. And already from 2021, the fiscal policy will have a neutral direction.
  • Promoting long-term economic growth. Fiscal policy in 2020 will deviate from the "golden rule" of public finances, which requires that the volume of government borrowing in that year does not exceed the volume of state investment, and current expenditures will be covered by own revenues. From 2021, fiscal policy will return to the "golden rule". Increasing the role of capital expenditures on public infrastructure under the "golden rule" will stimulate long-term economic growth and ensure the stability of public debt in the long run due to GDP growth.
  • Maintaining fiscal և debt stability. In the conditions of COIVID-19 epidemic, the decrease of the state budget tax revenues; current expenditures, and the growth of lending to the economy as a result of anti-crisis actions will lead to a significant deviation of the RA government debt burden from the threshold of 50% of GDP. The goal of fiscal policy in the medium term is to smoothly reduce the debt burden to 54.7% and then to ensure that the government's debt burden is reduced to 50% of GDP in the coming years.

For the coming years, 2021-2023, the Government will focus on priorities of the main expenditures of the state budget: social sphere (education, healthcare, social protection), necessary financing of defense and national security structures, implementation of infrastructure restoration and development programs in certain sectors of the economy.