IMF chief lauds Japan's planned sales tax hike

File photo of International Monetary Fund (IMF) Managing Director Christine Lagarde. (AFP/Jim Watson)

WASHINGTON: International Monetary Fund chief Christine Lagarde on Thursday praised Japan's planned sales tax hike as an initial step toward reducing the country's crushing debt burden and called for further efforts.

Lagarde said that Japan needed "a credible plan" to reduce its national debt, which is nearing 250 percent of gross domestic product, the heaviest debt burden of the advanced economies.

"The initial consumption tax increase is a welcome first step," the IMF managing director said in a speech at George Washington University in Washington, according to her prepared remarks.

"Entitlement reform is the next one. Without these policy fundamentals, any gains made so far could easily melt away.

Japanese Prime Minister Shinzo Abe announced on Tuesday that he intended to raise the sales tax in the world's third-largest economy to 8.0 percent from 5.0 percent in April, and would soften the impact with a $50 billion stimulus package.

Analysts worry the levy could hurt consumer demand, crucial to the government's bid to reverse a 20-year economic funk.

Since sweeping into office in December with a mandate to jump-start the economy, the conservative prime minister has launched a policy blitz of government stimulus and monetary easing dubbed "Abenomics".

"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 in the speech ahead of the IMF/World Bank annual meetings next week.

"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."

For instance, she added, increasing female participation in the labor force to match the Group of Seven average would boost per capita GDP by 4 percent by 2030.

Abe has said that boosting the number of women in the workforce was a top priority.

"Creating an environment in which women find it comfortable to work and enhancing opportunities for women to work and to be active in society is no longer a matter of choice for Japan," he said in addressing the UN General Assembly last week.

" It is instead a matter of the greatest urgency."