Japan’s government to review growth assumptions used for fiscal projections


The government plans to consider reviewing its economic growth assumptions used as a basis for projecting medium to long-term economic and fiscal performances for the entire country and local communities, according to sources.

Taking present economic conditions into account, the government is expected to study options including creating a third scenario — in addition to the current high-growth scenario assuming the economy’s revival, and the low-growth baseline scenario — and lowering the assumed growth in the rosier scenario, the sources said.

The government plans to show new growth assumptions next month based on discussions among experts, the sources said. The medium to long-term economic and fiscal projections are compiled twice a year.

At a recent meeting of the Council on Economic and Fiscal Policy, private-sector members of the blue-ribbon government panel, including Gakushuin University Prof. Motoshige Ito, proposed a review of the government’s economic growth assumptions.

Based on the possible new assumptions, the government hopes to adopt in summer 2018 a new target year for the nation to turn its primary budget balance into a surplus, the sources said. A primary budget surplus means that the country’s revenue, excluding from debt issuance, surpasses expenditures other than debt-servicing costs.

Earlier this year, the government postponed its target of achieving a primary surplus in fiscal 2020 in line with its decision to use part of the revenue from the planned consumption tax hike, to 10 percent from 8 percent in October 2019, for measures including a free education program instead of debt repayments.

The current economic revival scenario assumes medium to long-term economic growth of 2 percent or higher in price-adjusted real terms and 3 percent or higher in nominal terms, while the baseline scenario assumes real growth of slightly below one percent.

In fiscal 2013 to fiscal 2016, Japan’s annual real economic growth stood at 1.1 percent on average. Given its sluggish performance, the government will consider lowering assumed growth in the economic revival scenario and introducing a third scenario that is more optimistic than the baseline case but weaker than the economic revival scenario, the sources said.