Japan to avoid more debt for $4 trillion budget on quake: draft

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan will not tap bond issuance to fund an initial emergency budget worth 4 trillion yen ($47 billion) after last month’s earthquake and tsunami, a draft of the budget obtained by Reuters showed on Tuesday.

The emergency budget is likely to be followed by more extra budgets to support rebuilding efforts, with analysts and some Cabinet ministers suggesting that Japan may eventually need to spend 10 trillion yen or more.

The government is aiming to pass the budget by the end of this month.

Authorities are wary of adding to a massive public debt already twice the size of Japan’s $5 trillion economy, although some say that bond issuance may be unavoidable in later budgets.

The initial emergency budget includes more than 1 trillion yen of infrastructure-related public works.

To free up funds, the government is set to trim foreign aid and forgo some of its key spending pledges, including payouts to families with children. It will also use reserves for pension payouts, the draft showed.

Tokyo estimates the material damage alone from the disaster could top $300 billion, making it by far the world’s costliest natural disaster, which has left nearly 28,000 dead or missing and triggered a major nuclear crisis.

Markets are keeping a close eye on how much more the government will borrow to fund disaster relief costs, although Japan does not at present face a Greece-style debt crisis because its public debt is held almost entirely by domestic investors.

Following are details of the emergency budget outline. Figures may be revised later:

SPENDING: about 4 trillion yen

— Disaster relief, including provision of temporary housing: about 0.5 trillion yen

— Disposal of waste materials: some 0.3 trillion yen

— Public works: 1-1.5 trillion yen.

— Restoration of schools and welfare facilities like nursing homes: about 0.4 trillion yen

— Tax grants to local governments: about 0.1 trillion yen

— Other outlays such as employment support: around 1.5 trillion yen

REVENUES: about 4 trillion yen

— Review of payouts to families with children: about 0.2 trillion yen

— Reinstating some tolls on highways: about 0.1 trillion yen

— Cutting discounts on highway tolls: about 0.25 trillion yen

— Using reserves for pension payouts: about 2.5 trillion yen

— A 20 percent cut in official development assistance: about 0.1 trillion yen

— Using reserves for economic steps: up to 0.8 trillion yen

($1 = 84.6 Japanese Yen)

(Reporting by Tetsushi Kajimoto; Editing by Edwina Gibbs)

Japan to avoid more debt for $4 trillion budget on quake: draft