Photographer: Tomohiro Ohsumi / Bloomberg
Photographer: Tomohiro Ohsumi / Bloomberg
Japan’s cabinet approved a record budget next fiscal year topping $ 1 trillion and adds to the highest debt burden in the developed world as Prime Minister Yoshihide Suga fights to fight coronavirus and bolster economic recovery.
Japan’s 2021 fiscal budget forecasts 106.6 trillion yen in global spending over the twelve months beginning in April, 3.8% more than last year’s initial budget, the finance ministry confirmed on Monday . Actual spending could rise much further, given the likelihood of additional budgets, three of which were drafted this year amid the pandemic, which added 73 trillion yen to total spending.
The gap widens
Japan’s spending jumps as the coronavirus sweeps the economy
Source: Ministry of Finance
“We have had to balance the prevention of new infections, economic recovery and fiscal consolidation,” Finance Minister Taro Aso said. “That balance was the hardest part of compiling the budget.”
The pandemic has forced Japan to add to its mountain of public debt, with the new debt issuance reaching a record this year. Even before last week’s third extra budget, the International Monetary Fund saw public debt reach 266% of gross domestic product this year with a budget deficit of 14.2% of GDP.
Virus deficiency
The Japanese debt burden is jumping under pandemic stress
Sources: OECD, Bloomberg
The Suga administration announced this month more than $ 700 billion in incentives, funded in part by next year’s budget. The package aims to contain the virus while helping the economy transition to a post-Covid world.
Japan’s Suga doubles its travel bet in a $ 700 billion package
Daily virus cases in Japan have doubled to over 3,000 in recent days. Suga has already been forced to declare a temporary suspension of a travel subsidy program he had promoted, robbing him of an efficient way to boost an economy that some economists see threatened to fall back into recession.
As for monetary policy, the Bank of Japan he maintained his ultra-easy stance on Friday and also expanded his coronavirus response program by six months. The bank also surprised the market by promising a policy review without a full review, leaving economists and investors three months to speculate on possible changes.
The following are next year’s budget expenditures:
- 66.9 trillion yen in general expenditure, including:
- About 35.8 trillion yen for social security
- 5 trillion yen for a coronavirus response reserve fund
- Debt maintenance of 23.8 trillion yen
- 16 trillion yen in transfers to regional and local governments.
In terms of income, bond issuance is projected to peak since the global financial crisis. Debt income will increase to 40.9% of total revenue, compared to 31.7% in 2020. The Ministry of Finance plans to offer a total of 236 trillion yen of government bonds next year , most of which will be bond refinancing.
The following is a breakdown of projected revenue for fiscal year 2021:
- 57.4 trillion yen in tax revenue.
- 43.6 trillion yen in revenue from the issuance of new bonds
- 5.6 trillion yen from other sources.
(Adds the comments of the Minister of Finance, new chart, IMF fiscal deficit forecast.)