IMF urges Japan to start cutting its massive debt

Image caption,
Japan's economy is picking up the IMF says, but debt is a concern

The International Monetary Fund (IMF) has urged Japan to start cutting its massive debt burden from next year.

It said Japan should start increasing consumption tax to tackle its debt, which at nearly 230% of GDP, is the highest of any industrialised nation.

Concern has grown around the world about mounting levels of government debt after the financial crisis.

The IMF said Japan's economic recovery should allow it to start introducing debt-reduction measures.

Along with tax measures, it said Japan should also contain its growth in spending.

"With global scrutiny of public finances increasing, the need for early and credible fiscal adjustment has become critical," said the IMF's John Lipsky after the organisation's annual visit to Japan.

Japan, like most developed economies, has poured money into the financial system to avert the worst of the financial crisis, something the IMF said had stabilised markets and supported the recovery.

But aside from the economic woes of the past two years, increasing tax revenues has proved particularly difficult for the Japanese government, which has been battling to expand its economy for the past 20 years.

Economic expansion is now happening, and the IMF predicts further GDP growth of 2% for this year and next.

Part of the problem has been the Japanese consumers' unwillingness to spend amid deflation. The Bank of Japan has made targeting falling prices a priority, and the IMF thinks inflation will start to creep back late next year.

The organisation suggests this will give the Japanese authorities scope to raise money via a consumption tax, something that has proved impossible while people are cautious about spending.

The latest GDP figures for Japan are due out on Thursday. The government is expected to unveil its plans for the economy next month.

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