IMF Warns Japan about Spiraling Debt

July 27, 2015Japanby EW News Desk Team

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Japan has one of the highest levels of debt of any nation in the world, and it is only growing. According to a recent report by the International Monetary Fund (IMF), Japan’s national debt will be three times the size of its economy by 2030 unless the government takes action now to control its spending.

According to a story first appearing in Forbes, as of today, Japan's national debt runs at about 245 percent of its annual gross domestic product (GDP). That equates to approximately 1 quadrillion yen (US$11 trillion). By comparison, the US national debt for 2015 runs about US$18.2 trillion, or 102.6 percent of GDP. While considered high, overall, it pales by comparison to Japan's debt-to-GDP ratio of more than twice as much.

In a report by the IMF, it said of Japan's current staggering debt that "Japan's public debt is unsustainable under current policies ... A credible medium-term fiscal consolidation plan is needed ... [it] should aim to put debt on a downward path."

This is not the first time the IMF has urged Japan to control its enormous debt. The nation has not yet recovered from a decades-long deflationary period that caused it to borrow enormous amounts of money in order to fund programs aimed at boosting growth. Although Japan today has the world's third largest economy, it has come at the cost of this staggering debt.

According to the IMF, Japan must find a balancing point between growth and debt reduction if it wishes to avoid an economic disaster. For example, a consumption tax hike goes into effect in April 2017. It is the second phase of an existing tax increase strategy designed to add more money to government coffers. However, this income to the government comes as the risk of slowing growth. That could create a stall that would put the economy into a direct tailspin if it drags on growth too strongly. In response, the IMF has proposed that Japan start working now to find ways to offset that drag on the economy.

The IMF has also recommended that Japan continue to focus on economic structural reforms. Following the election of the current prime minister, Shinzo Abe, the nation has experience sweeping economic reforms called "Abenomics", but the IMF feels that more needs to occur. It proposes a more structured, concrete plan to economic reform that would "provide confidence to the private sector about what's the future path of fiscal policy and, therefore, both for consumption and investment that is a positive."

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