World News

Japan sees smaller budget surplus as government grapples with mountain of debt

TOKYO (Reuters) – Japan kept the timing for balancing the primary budget unchanged on Friday but expects to see a much smaller excess than previously thought when it hits a budget surplus, underlining the government’s struggle to rein in massive public debt.

Prime Minister Shinzo Abe’s government stuck to its forecast of achieving a budget surplus by fiscal 2027, but expects to see a smaller surplus due to a downward revision to its outlook for economic growth and tax revenue since its previous projections in July.

In its twice-yearly fiscal and economic projections, the government now expects the primary budget, excluding new bond sales and debt servicing, to swing to a surplus of just 300 billion yen ($2.73 billion) in the fiscal year starting April 2027.

The latest calculations underscore the challenge the world’s third-largest economy faces to fix its tattered finances as the cost continues to grow of caring for its rapidly aging population.

Japan has the industrial world’s heaviest debt burden, more than twice the size of its $5 trillion economy, and policymakers have wrestled to keep it in check as they spend more on social security and public works.

Abe has placed greater importance on growth to preserve a fragile economic recovery than on fiscal reform.

In its July estimate, the government expected the primary budget balance to swing to a 0.2% surplus of gross domestic product in fiscal 2027, but now it forecasts an excess of less than 0.1%.

Abe’s Cabinet is expected to submit to parliament a record $934 billion draft budget for the next fiscal year starting in April after managing to secure parliamentary approval for a $122 billion fiscal package aimed at holding up growth.

The government is sticking to an optimistic forecast of 1.4% real gross domestic product growth for the next fiscal year starting in April, nearly three times as high as the 0.5% economic growth seen by private-sector economists.

The government upgraded that growth forecast last month based on an improvement in domestic demand due to stronger corporate investment and a boost to growth from public spending from the fiscal package.

Based on the government’s most optimistic scenario, it expects real GDP growth to fall back to 0.8% in fiscal 2021, down from a forecast of 1.3% real GDP growth released at its previous assessment in July last year.

(Reporting by Daniel Leussink; Editing by Frances Kerry)