Japan will miss its target for cutting its fiscal deficit even if it achieved nominal economic growth of 3 percent, unless there are further cuts in spending, according to a government estimate obtained by Reuters on Monday.
The government aims to halve the ratio of Japan's primary budget deficit to gross domestic product by fiscal 2015/16 from the 2010/11 level, and to achieve a primary budget surplus by 2020/21.
That is becoming increasingly difficult after Japan decided to issue 43 trillion yen ($460 billion) in new bonds under the state budget for next fiscal year, boosting public works spending to revive the economy.
The country's primary budget balance, which excludes debt servicing costs and income from bond sales, showed a deficit of 6.8 percent of gross domestic product (GDP) in fiscal year 2010/11.
Even if Japan achieved an average nominal economic growth of 3 percent, the ratio will only improve to 3.3 percent of GDP without spending cuts, the estimate showed.
If Japan only achieves average growth of 1.5 percent, the ratio would stay at 3.8 percent of GDP without spending cuts, it showed.
Japan posted a 1.3 percent expansion in nominal GDP in fiscal 2010/11 but suffered a 1.4 percent contraction in the fiscal year that ended in March 2012.
($1 = 93.4450 Japanese yen)
(Reporting by Takaya Yamaguchi; Writing by Leika Kihara and Kaori Kaneko; Editing by Richard Borsuk)