Rising rates are testing Japan’s fiscal framework, with debt dynamics hinging on growth and pointing to the need for adjustment and a fiscal council.
Japan combines the highest public debt ratio among advanced economies with a fiscal framework that has struggled to anchor fiscal policy. As monetary policy normalises and interest rates rise, concerns about debt sustainability have intensified. We assess Japan’s debt dynamics using stochastic debt sustainability analysis, and examine the institutional foundations of its fiscal framework. We show that debt outcomes are highly sensitive to growth assumptions. Under plausible baseline scenarios, debt does not stabilise without sustained primary surpluses and even optimistic growth assumptions require fiscal adjustment relative to the current structural primary balance. Japan’s challenge is institutional as well as economic: weak enforcement of fiscal rules and the absence of independent oversight undermine credibility. Strengthening fiscal institutions, particularly through an independent fiscal council, could support debt stabilisation.
Source : Bruegel
Nearly nine in ten chief economists surveyed expect global growth to weaken over the next…
The Director-General emphasised that the “Four Levels of Food” provide a crucial roadmap for enhancing…
Chief economists already rank the current closure duration of the Strait of Hormuz as significantly…
Over the next decade, about 280 million people will come of working age in South Asia.…
Imagine you’ve just been appointed Minister of Finance. Tomorrow morning, you must decide where to…
Over the next quarter-century, today's frontier markets are projected to add more individuals to the…