Indonesia's public finances look set to slide deeper into the red, squeezed by lower revenues and extra public spending in the wake of the Bali bomb.

Officials expect the country's budget deficit - the amount by which government spending exceeds its revenues - to hit 1.5% of gross domestic product next year, up from an initial projection of 1.3%.

The country's widening budget gap partly reflects an anticipated decline in government revenues as a slump in tourist numbers undermines economic growth.

The Indonesian economy is now forecast to expand by just 3.5 to 4% in 2003, down from an earlier estimate of 5%.

IMF support

The wider budget gap also reflects a decision to increase public spending in order to stimulate the flagging economy.

Indonesian Finance Minister Boediono late on Thursday asked the country's parliament to approve $636m in extra public expenditure next year.

About $530m of the stimulus package is expected to be channelled into development projects.

Indonesia's plans to run a higher deficit have received the seal of approval from the International Monetary Fund, normally an advocate of budgetary restraint.

The IMF's representative in Jakarta, David Nellor, said widening the budget deficit was "appropriate for these circumstances".

Demand boost

Analysts said sticking to the original spending plans would have forced Jakarta to increase taxes to compensate for lower revenues, dampening consumer sentiment and putting added strain on the economy.

Investment bank Merrill Lynch said in a research note that the looser fiscal environment would "help improve overall demand conditions".

The 12 October Bali bomb blast killed nearly 200 people in one Indonesia's most popular tourist resorts, most of them foreign holidaymakers.

The bomb, which came 13 months after the 2001 World Trade Centre attacks, has been blamed on Islamic extremists.