World Economy

Japan Plans Record Spending as Debt Piles Up

Shinzo AbeShinzo Abe

Japan’s cabinet approving a record $830 billion spending budget for fiscal 2017 has underscored the nation’s struggle to curb spending and rein in its massive public debt in the face of a demographic nightmare as fiscal rehabilitation remains firmly on the back burner, while money for military spending seems readily available.

Analysts here have also been quick to note that the 97.5-trillion-yen general-account budget for the fiscal year starting on April 1, sees a whopping 733 billion yen from the proposed plan earmarked for a rapidly swelling social security bill, to deal with welfare costs associated with Japan’s rapidly aging society, Xinhua reported.

Also raising the eyebrows of economists and military analysts, is the fact that Japan’s defense spending is set to rise for a fifth straight year to a new record 5.12 trillion yen ($43.60 billion), as the defense ministry eyes a shopping list of new military hardware, with local analysts believing Japan can ill-afford such technology, especially if it can’t provide the social welfare necessary to deal with its own “demographic overhang.”

Prime Minister Shinzo Abe has repeatedly stated, however, in contrast to the massive spending plans just outlaid, that he plans to curb spending on his way to achieving, as with all his economic targets that are far from coming to fruition, his aim of creating a primary budget surplus, excluding debt servicing and new bond sales, by the fiscal 2020.

And analysts believe that the spending plans will not stop here, as has been the case in the past, and more extra budgets will be pumped out by Abe’s administration that preaches austerity on the one hand yet looks to spending for stimulus time and again, despite the fact that public debt currently stands at 240% the size of Japan’s economy and the worst in the industrialized world.

“This budget does not mark a shift away from reflationary policies. Chances are high for Abe to compile additional stimulus budgets later next year,” Toru Suehiro, senior market economist at Mizuho Securities, said.

Meanwhile, the Organization for Economic Cooperation and Development, has warned that Japan’s debt pile could jump to 400% of GDP within three decades, if policymakers do not implement structural reforms and keep from simply piling on more debt.

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