JAPAN’S debt is unsustainable and could climb to almost three times the size of its economy by 2030 unless the government does more to cut its budget, the International Monetary Fund (IMF) said Friday.

    The government should consider rules to curb spending, limits on extra budgets and independent assessments of its projections, the IMF said. Reliance on optimistic economic assumptions risks harming confidence in its plan to put the budget into surplus, excluding interest payments, by 2020, according to an IMF report.

    “Doubts about long-term fiscal sustainability could lead to a jump in the sovereign risk premium, forcing abrupt further fiscal adjustment with adverse feedback to the financial system and the real economy,” the IMF said.

    “Japan’s extremely high financing needs point to vulnerabilities to changes in market perceptions.” The Bank of Japan (BOJ) should stand ready to increase monetary stimulus further and provide stronger guidance to markets, the IMF said, projecting inflation won’t reach the BOJ’s target in the medium term. Japan’s exchange rate, adjusted for its trade and inflation, is moderately weaker than is consistent with its fundamentals, the IMF said.

    The yield on Japan’s benchmark 10-year government bond was at 0.41 per cent at 9.23 am on Friday in Tokyo, the second lowest in the world for that maturity.

    Prime Minister Shinzo Abe’s fiscal consolidation plan will only temporarily stabilize public debt at about 250 percent of gross domestic product before it accelerates again under current policies, to around 290 per cent of GDP by 2030, the IMF said. To cut its obligations over the long term, the government needs to reduce its structural primary balance by 4.5 percent of GDP, it said.

    While debt risks “have been contained,” as a lot of debt is held domestically, “we cannot assume this will continue,” said Kalpana Kochhar, IMF mission chief for Japan.

    Japan’s increasing reliance on economic growth to cut its debt burden exposes the nation to greater risks, according to Fitch Ratings, which in April cut its rating on Japan to the same level as Israel and Malta.

    Abenomics — the plan Abe introduced to revive growth when he took office in 2012 — needs to be “reloaded so that policy shortcomings do not become a drag on growth and inflation,” the IMF said.(SD-Agencies)