WASHINGTON, July 14 The International Monetary
Fund on Wednesday urged Japan to act soon to reduce its huge
public debt using measures including a gradual increase in its
In documents published alongside the IMF's annual review of
Japan's economy, IMF staff said an adjustment of about 10
percent of gross domestic product over a decade was needed to
stabilize and reduce government debt.
The IMF said while such an adjustment could be achieved in
a number of ways, raising the consumption tax should be a
centerpiece of those efforts.
It suggested that increasing the consumption tax to 15
percent starting in fiscal year 2011 could generate revenue of
4 to 5 percent of GDP.
The IMF said the severe recession and large fiscal stimulus
measures pushed Japan's public debt to 218 percent of GDP.
Without a fiscal adjustment, public debt would rise and
approach 250 percent of GDP by 2030, it added.
With the proportion of debt to GDP reaching historical
levels and one of the highest among rich nations, the IMF said
fiscal consolidation was unavoidable in Japan.
"While a part of the adjustment could come from the expiry
of fiscal stimulus package and cyclical factors, given
the limited space for further expenditure cuts, the rest of the
adjustment would have to rely on additional revenue measures
including increases in the consumption tax," the IMF said in a
The IMF said it was concerned about how such a large
adjustment with a tax hike would affect economic growth in the
short run but noted it would pay off over the medium-term.