TOKYO – Japan on Thursday pledged huge spending cuts amounting to $83 billion over two years as it works to bring down the industrialized world’s biggest debt mountain.
The cuts — amounting to an average reduction of more than 4.0 percent of current annual spending — comes days after the International Monetary Fund warned again over Tokyo’s borrowings.
The moves were outlined in the government’s mid-term fiscal plan which called for cuts of 8.0 trillion yen ($83 billion) between April 2014 and March 2016.
There were few details about where the reductions would be made, and they come after Prime Minister Shinzo Abe pledged to boost public spending to stoke Japan’s tepid economy.
Another key part of Abe’s plan, dubbed “Abenomics”, was the Bank of Japan’s huge monetary easing plan, unveiled in April, as Tokyo looks to counter years of growth-sapping deflation.
Japan’s annual budget is about 93 trillion yen, with about 40 percent of that spending coming from borrowing which has created a debt pile that is more than twice as big as Japan’s economy — the worst among industrialised nations.
The country has not faced a public debt crisis like the kind seen across the eurozone, largely because most of its low interest rate debt is held domestically rather than by international creditors.
However, the IMF and others have warned that Japan must follow through on key fiscal and structural reforms to the economy, another key plank of Abe’s plan but a difficult sell to many of Japan’s cossetted industries.
On Monday, the IMF called on Tokyo to adopt a “credible” strategy that includes raising sales taxes to boost government revenue and deregulating the farming sector among others.