Finance ministry data showed Japan's general government fiscal deficit is expected to reach 9.8 per cent of gross domestic product this financial year.

"Ten per cent of GDP is rather extreme," said a finance ministry official. "Even in Brazil, the budget deficit is only 7 per cent," he said.

The general government figure includes the central government and local governments but does not include the social security account.

The official said while the United States and Canada were doing a good job of balancing their budgets and many European countries had budget deficits that were within 3 per cent of GDP as they moved towards monetary union, Japan's fiscal position continued to worsen.

Japan's government is digging itself deeper in debt in attempts to prop up itswaning economy, as economic stimulus package after economic stimulus package means greater reliance on public bond issues. Additional public bonds issues for this financial year will come to 34 trillion yen ($280 billion).

This fiscal headache was a key factor behind the downgrade in Japan's credit ratings by Moody's Investors Service last month. The finance ministry also estimated gross general government debt at 111 per cent of GDP for this financial year.

This puts it ahead of all except Italy among the G7 when compared with OECD figures.

The OECD predicts Italy's gross debt will fall to 116 per cent in calendar 1999 from 118.5 per cent this year, but the official was not as optimistic about Japan.

"In Italy, the trend is for improvement but on the other hand, Japan's numbers are deteriorating at an alarming pace," he said.

The official also produced sobering forecasts for tax revenue growth.

With expenditures expected to exceed tax revenues by 30 trillion yen in an average fiscal year, thefinance ministry had calculated that even with 2 per cent nominal GDP growth, tax revenues would grow by only one trillion yen.

Of that amount, 700 billion yen would be left for the central government's general account, less than the 800 billion yen needed for debt servicing costs.

"Even if we did not increase any expenses such as social security and defence, then the deficit would not decrease," he said.