Indonesia will design its 2023 budget with a fiscal deficit of slightly less than 3% of GDP, its finance minister said on Thursday, sticking with its fiscal consolidation plans while pledging to continue big infrastructure spending.

Sri Mulyani Indrawati said next year's budget will be designed with a deficit within a range of 2.81% to 2.95% of gross domestic product, down from an expected deficit of around 4% this year.

By law, Southeast Asia's largest economy must next year reinstate a budget deficit ceiling of 3% of GDP, which has been waived since 2020 to give the government room to weather the COVID-19 pandemic by increasing spending and debt.

Sri Mulyani said a smaller 2023 deficit will mean the government will be able to cut back on its debt issuance at a time of high inflation and tighter monetary conditions globally.

Despite the fiscal tightening, the minister said she will allocate between 367 trillion rupiah to 402 trillion rupiah ($25.59 billion - $28.03 billion) for infrastructure spending next year, the upper end of which represents roughly a 10% increase from this year's spending.

"For infrastructure, we will provide a significant budget to finish important projects," she said, listing a number of projects including housing, drinking water, irrigation and tech infrastructure.

The government will also set aside between 27 trillion rupiah to 30 trillion rupiah next year for the development of the country's new capital city, Nusantara, on the eastern side of the Borneo island, she said.

The funds will be spent on basic infrastructure, offices, schools and medical facilities, and security-related spending in the new city.

Indonesia will also bolster its non-COVID-19 healthcare budget as coronavirus-related spending will not be a priority anymore, with the virus expected to become endemic by next year, Sri Mulyani said.

President Joko Widodo usually presents a more detailed version of his budget proposal to parliament on August 16, the eve of celebrations of the country's independence from Dutch colonialism.

($1 = 14,343.0000 rupiah)

(Reporting by Fransiska Nangoy, Stefanno Sulaiman; Writing by Gayatri Suroyo; Editing by Kanupriya Kapoor)