The International Monetary Fund urged Japan on Wednesday to go ahead with a planned hike in consumption tax next April in order to secure funds for further economic stimulus.
In the semiannual Fiscal Monitor report, the Washington-based lender called for an increase in the consumption tax by 2 percentage points to 10 percent, a plan analysts say can convince other economies that Japan is committed to reducing its snowballing national debt and restoring fiscal health.
"A commitment to fiscal consolidation centered on a preannounced path of gradual consumption tax hikes and a strengthening of fiscal institutions would create policy space to moderate the pace of near-term fiscal consolidation," the IMF report said.
Advanced economies "remain vulnerable in a context of high debt, low inflation, and low growth," it said.
In an IMF tally, the ratio of national debt to gross domestic product with advanced economies overall is expected to average 107.6 percent in 2016, up from the 92 percent in 2009.
The ratio for Japan this year is projected to be 249.3 percent, far larger than the figures for any of the other Group of Seven industrialized countries — Britain, Canada, France, Germany, Italy and the United States — according to the IMF.
The IMF forecasts that the overall growth rate for advanced economies will reach 1.9 percent in 2016, compared with around 3 percent before the 2008 financial crisis.
"Most of the debt built up since 2008 could be undone with 1 percentage point of additional real growth during the next 10 years on average," the report said.