Japan may be able to restore its fiscal health in fiscal 2029 under the most optimistic growth scenario, two years later than previously estimated due to the impact of the novel coronavirus pandemic, the government’s latest projections show.
Previously, the government had projected it could attain a surplus in the primary balance — tax revenues minus spending except to pay interest on past debt — in fiscal 2027, but now it forecasts that it might move into the black with a ¥300 billion ($2.88 billion) surplus in the year through March 2030.
The delay would be caused by a decline in tax revenues from earlier this year caused by the pandemic and growing expenditures to ease its impact, according to the semiannual long-term estimates.
The projections, released Friday, were made under a scenario assuming the world’s third-largest economy will achieve real growth of over 2 percent and nominal growth of 3 percent annually for five years from fiscal 2021, which begins next April.
If gross domestic product growth remains at relatively low levels of below 2 percent both in real and nominal terms in fiscal 2024 and later, the economy will have a primary deficit — of ¥10.3 trillion — even in fiscal 2029, according to the projections.
Prime Minister Shinzo Abe said at a government meeting, where the estimates were presented, that the projections show that Japan’s “mid- to long-term economic and fiscal conditions are severe.” He vowed to “continue steadily promoting integrated economic and fiscal reforms.”
“We’ll thoroughly control the infection spread while putting all our efforts into maintaining employment, securing business continuity and supporting people’s livelihoods, amid the serious and widespread impact of the virus outbreak on economic activities and daily life,” Abe said.
At a news conference, economic revitalization minister Yasutoshi Nishimura said the government will continue to aim for the goal of achieving the positive turnaround of the primary balance through fiscal reform in fiscal 2025, which the government in 2018 pushed back from the previous fiscal 2020.
Japan has been struggling to improve its fiscal health, the worst among advanced economies, since even before the pandemic. With snowballing social security costs such as pensions and health care spending to support the country’s rapidly aging population, public debt has surged to over ¥1.1 quadrillion.
Concern over a further fiscal deterioration has been growing due to the virus’s spread, with the Diet already passing two extra budgets totaling about ¥57 trillion for the current fiscal year for virus-relief packages. They will be partially financed by nearly ¥46 trillion in deficit-covering bonds.
Among the stimulus measures are ¥100,000 cash handouts for the nation’s 126 million residents.
The government said strong economic growth under the most optimistic scenario could be achieved by “steadfastly raising productivity” through the digitalization of society and promoting further remote working as the “new normal” in the post-virus era, among other measures.
It also stressed the importance of realizing an economy led by private demand rather than relying on public spending and ensuring a path toward overcoming deflation and economic revitalization.
The projections also showed that inflation will reach the Bank of Japan’s 2 percent target in fiscal 2024, under the rosiest scenario. In the case of slower economic growth, the goal will be unattainable even by fiscal 2029, the last year listed in the current projection period.
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