Japan to seek US$242b for debt servicing

[TOKYO] Japan's Ministry of Finance is set to seek about US$242 billion in debt servicing for the fiscal year from next April 1, up for a third straight year on a budget-request basis, a ministry draft reviewed by Reuters showed.

The budget request for debt redemption and interest payments would total US$242.03 billion, marking a 9.2 per cent increase from the current fiscal year ending in March, according to the draft, which was confirmed by several sources with direct knowledge of the matter.

It would exceed 25 trillion yen (S$326.1 billion) on initial budget basis for the first time in five years, underscoring a struggle for the heavily indebted government to finance snowballing debt that tops twice the size of Japan's US$5 trillion economy.

In compiling its budget request, the ministry estimated interest rates at 1.2 per cent thanks to the Bank of Japan's ultra-low rate policy. Still, massive outstanding debt prevented debt servicing costs from rising.

Ministries and government offices are due to file budget requests for the next year by the end of this month.

The requests will be scrutinised by the finance ministry when it compiles a draft budget plan for fiscal 2021/22 in late December.

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Due to uncertainty over the coronavirus, the government has not set a ceiling on budget requests, which made it difficult to curb spending.

The government has compiled two extra stimulus budgets for this fiscal year to cope with the virus, which will boost overall government spending to some 160 trillion yen, 1.6 times the size of an initial budget.

REUTERS