IMF warns Japan faces staggering debt
The International Monetary Fund has warned that Japan’s debt could rise three times the size of its economy by 2030.
In its annual assessment of the world’s third largest economy, the IMF said Japan risks stagflation and turmoil in financial markets, urging the government to cut spending and limit extra budgets.
Japan’s public debts are expected to hit 250% of gross domestic product in the next five years, IMF economists warned.
They said the country’s fragile economic recovery is facing risks from the stalling of structural reforms. The IMF also cast doubt on Prime Minister Shinzo Abe’s reform plan, contending that it was failing to revive the economy.
Abe’s aggressive bid to water down Japan’s pacifist policies has pulled down his popularity, with many analysts believing he lacks power to push through more structural reforms.
His Abenomics reforms have been credited with lending some vigor to the flagging economy but he has to go to greater lengths yet to face off enormous long-term challenges which the country's graying population poses.
The IMF warned that Japan’s much favored policy of depreciation of the yen could ultimately lead to a sharp rise in inflation and subsequent stagflation as a result of weak domestic demand.
“Abenomics needs to be reloaded so that policy shortcomings do not become a drag on growth and inflation,” the economists wrote.
Prime Minister Abe’s policy to restore fiscal health is focused on stimulating growth instead of curbing budget spending.
According to Fitch, Japan’s increasing reliance on economic growth to cut its debt burden exposes the nation to greater risks. In April, the agency cut its rating on the country to the same level as Malta.
The IMF urged Japan to launch a new round of reforms to lift labor supply and open up its heavily protected agricultural and service sectors.
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