Japan pushes back budget surplus target by two years due to coronavirus

TOKYO (Reuters) - Japan on Friday pushed back its estimated return to a budget surplus by two years, due to the massive increase in spending needed to support the economy during the coronavirus and putting pressure on the nation’s massive debt burden.

FILE PHOTO: People, wearing protective masks following an outbreak of the coronavirus disease (COVID-19), walk on an almost empty street in the Dotonbori entertainment district of Osaka, Japan, March 14, 2020. REUTERS/Edgard Garrido

The country faces the challenge of restoring fiscal health as even as some policymakers call for more spending to deal with the pandemic.

The government has delayed its forecasts for achieving a surplus to the fiscal year starting April 2029 from the previous projection of fiscal 2027 made in January.

In its twice-yearly fiscal and economic projections, the government expected the primary budget, excluding new bond sales and debt servicing, to swing to a surplus of only 300 billion yen ($2.87 billion) in the fiscal year 2029.

The government has so far compiled a combined stimulus spending worth $2.2 trillion to soften the hit from the coronavirus outbreak.

Japan’s worsening fiscal health highlights the difficulties for policymakers as they try to boost the economy from a sharp slump due to the pandemic, while fighting to curb the spread of the virus.

The government forecasts real gross domestic product (GDP) to shrink 4.5% for the current fiscal year to March 2021, the fastest contraction since comparable data became available in 1994, and sharply down from its previous 1.4% growth projection made in January.

The economy then is expected to rebound 3.4% for the next fiscal year, according to the estimate.

The latest estimate also showed nominal GDP will grow to 600 trillion yen by fiscal 2023, later than the original target of around 2020.

A panel of seven economists on Thursday declared a tentative end to the economy’s second-longest boom and entered “recession” in late 2018, suggesting it was struggling long before its more recent coronavirus slump.

Reporting by Kaori Kaneko; Editing by Sam Holmes