TOKYO (Reuters – Japan might achieve a primary budget surplus for fiscal 2026 assuming a rosy outlook for economic growth. But, added deficits may continue for a decade if Japan experiences a modest recovery.

Even though higher tax revenues than anticipated could increase the timeline for budget balance, the twice-yearly fiscal outlook revealed the difficulties for indebted governments to get their finances in order.

It has stated that it aims to have a primary surplus budget in fiscal 2025. If policymakers do not stop trying to control social security spending, the goal will be “in sight”.

The government’s ability to maintain or drop this goal, which excludes new bonds sales and debt servicing costs, will determine Prime Minister FumioKishida’s commitment towards fiscal reforms.

The most recent revision of this goal contained a caveat: it will be reviewed when revised fiscal projections have been issued to adjust for any fallout from pandemic.

Fiscal review was performed by Council on Economic and Fiscal Policy, the top-ranking economic advisory panel.

Kishida has long been known for being a fiscal hawk and prioritised economic recovery from COVID-19 over long-term reforms.

Japan is the industrial world’s second-largest country in terms of public debt. The result of years of large spending to revive growth, it has more than twice the amount of Japan’s $5 trillion economy.

According to the government, the rosier scenario assumed annual growth of more than 2% in real terms. This is something rare since the collapse of the asset boom in early 1990s. Baseline scenarios assume real growth around 1%, and nominal growth around 1.5%.