Christine Lagarde, International Monetary Fund chief, lauded on Thursday Japan’s intentions to raise the sales tax as a first step that would reduce the country’s acute debt.
Japan’s national debt is almost 250 percent of gross domestic product – the most severe debt of all the advanced economies in the world – and the country needed “a credible plan” to reduce it, Lagarde said.
“The initial consumption tax increase is a welcome first step,” the IMF managing director said in a speech at George Washington University in Washington. “Entitlement reform is the next one. Without these policy fundamentals, any gains made so far could easily melt away”.
Prime Minister Shinzo Abe said on Tuesday that he plans to raise the sales tax from 5.0 percent to 8.0 percent in April and would soften the impact with a $50 billion stimulus package, according to the international press.
“The government’s aggressive stimulus policy seems to be working – boosting GDP by about 1 percent. Deflation is coming to an end and a newfound optimism is in the air. Yet this Japanese effort is not complete either,” Lagarde said. “The fiscal and financial efforts must be complemented by structural reforms – to make sure that policies to boost demand are supported by policies to boost supply.”