Japan pledged to cut $83 billion from its budget over two years as they try to bring down the country’s debt which is the biggest among the developed countries. This is an average reduction of more than 4% from their current actual spending.
This pledge was revealed in the government’s mid-term fiscal plan as they aim to cut the budget between April 2014 and March 2016. However, they did not reveal where the cuts will be coming from. Japan’s annual budget is 93 trillion yen and 40% of that spending comes from borrowing, which is why they have accumulated debt that it is more than twice the nation’s economy. This is the worst public debt crisis they have ever experienced because most of the low-interest debt is held domestically instead of international creditors.
The International Monetary Fund has continually warned Tokyo about its rising debt, telling Prime Minister Shinzo Abe that his administration should follow through on drastic key fiscal and structural reforms to bring Japan out of years of deflation. They told Japan to create a “credible strategy” which includes raising sales taxes and deregulating the farming sector.
Bank of Japan chief Haruhiko Kuroda also echoed the IMF, saying that their huge stimulus drive will not work if the fiscal reforms are not implemented. “It is extremely important for the government to clarify the path of fiscal rehabilitation and to move ahead with fiscal and structural reforms,” he added.