Abenomics boosting Japan but debt still too high, says OECD

24 Apr 13
Japan’s economy is on the brink of recovery but long-term growth requires a reduction in public debt, the Organisation for Economic Co-operation and Development has said.

By Vivienne Russell | 24 April 2013

Japan’s economy is on the brink of recovery but long-term growth requires a reduction in public debt, the Organisation for Economic Co-operation and Development has said.

An OECD report, presented in Tokyo yesterday, forecast that Japan’s economy will grow by 1.5% in 2013 and 2014. It also praised action taken by Prime Minister Shinzo Abe to end 15 years of deflation and reboot growth. Dubbed ‘Abenomics’, this ‘three-pronged’ plan comprises bold monetary policy, flexible fiscal policy and a growth strategy.

‘Abenomics has changed the mood in Japan, bolstering confidence for private sector firms and households alike,’ said OECD secretary general Angel Gurría.

‘The coming expansion will be driven by exports, and should increase business investment and employment and bring an end to deflation. While we are encourage by these developments, it remains critically important for Japan to address extremely high and still rising levels of government debt and other challenges posed by its ageing population.’

Japan’s public debt reached 220% of gross domestic product in 2012 – the highest level ever recorded in the OECD group of developed economies. Its budget deficit is stuck at around 10% of GDP.

The OECD underscored the urgent need to restore fiscal sustainability to Japan. It recommended a package of spending cuts and tax rises to eliminate the deficit by 2020 and bring down the debt ratio. Other recommendations include regulatory reform, particularly for the agriculture sector, which needs to be made more competitive.

Japan should also focus on renewing and restructuring its energy sector, increasing the use of renewable energy, particularly after the 2011 Fukushima nuclear accident, the OECD said. And more women should be encouraged to participate in the labour force, a move that needs to be supported by tax, social security and childcare reforms.


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