Fiscal Plan Reflects Debt-Dependence and Rising Borrowing Costs
One significant aspect of the fiscal plan is the estimated reliance on debt, accounting for 31.2% of the budget. This means that new bond sales constitute one-third of total budgetary funding. With super-low interest rates prevailing for more than two decades, fiscal discipline has weakened, leading to a soaring public debt that is more than twice the size of Japan’s economy.
In an attempt to address this issue, the government has included higher interest rates in the budget plan for the upcoming fiscal year, marking the first increase in 17 years. The assumption of higher rates, at 1.9% compared to the current 1.1%, will result in a further rise in debt-servicing costs, reaching 27 trillion yen in fiscal 2024/25, a 7% increase from the current year.
Challenges Ahead in Achieving Fiscal Targets
Despite these measures, analysts are skeptical about Japan’s ability to achieve its goal of a positive primary budget balance by the end of March 2026, excluding new bond sales and debt-servicing costs. Experts emphasize the importance of presenting a credible plan to restore the country’s public finances, even if it means delaying the target. Takuya Hoshino, a senior economist at Dai-ichi Life Research Institute, suggests that the primary budget balance target may need to be postponed.
In conclusion, Japan’s fiscal 2024/25 budget reflects the country’s aim to address its fiscal challenges, with a reduction in overall spending and increased borrowing costs. As the economy evolves, it will be crucial for Japan to implement effective strategies to restore its fiscal health and manage its substantial public debt burden.