updated 5/3/2004 5:40:28 PM ET 2004-05-03T21:40:28

The government expects to borrow $38 billion from the credit markets this quarter — about half the amount it previously estimated, the Treasury Department said Monday.

The improvement reflects in part higher tax revenues and lower government spending, the department said. The previous estimate, in February, for the April-to-June quarter was $75 billion.

Treasury needs to borrow to finance the daily operations of government, including meeting interest payments on the national debt, which topped $7 trillion earlier this year.

In the January-to-March quarter, government borrowing came to $146 billion, an all-time high for any quarter. Still, that was an improvement over the previous borrowing estimate of $177 billion made in February. "The decrease in borrowing is largely attributable to lower tax refunds and higher payroll taxes," the department said.

For the upcoming, July-to-September quarter, Treasury expects to borrow $91 billion.

The estimates are made as the department considers the government's financing needs, something it does on a quarterly basis.

The new estimates come against the backdrop of an economic rebound. The economy expanded at a solid 4.2 percent annual rate in the opening quarter of this year. Analysts believe economic growth in the current quarter will be even better, with estimates in the range of a 4.5 percent to 5 percent pace.

Even with the economy strengthening, the federal government is expected to produce a record amount of red ink this budget year. The White House expects the deficit to swell to $521 billion, while the Congressional Budget Office forecasts $477 billion in red ink. Either projection would mark a record in dollar terms.

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