Japan's Cabinet has endorsed the smallest government budget in four years. The draft budget reflects Prime Minister Junichiro Koizumi's reform commitment to cut spending and reduce debt.

In its draft budget for the next fiscal year, Japan's government has proposed billions of dollars in cuts in foreign aid and limits on new government bonds.

State minister for economic and fiscal policy, Heizo Takenaka, says reducing Japan's public debt is a budget priority. "We must put an end to our present financial condition in which the deficit keeps getting bigger. We have to cut it down. We are at the limit," Mr. Takenaka said.

The proposed $635 billion budget is 1.7 percent smaller than this year's, excluding the two extra budgets. It includes a 10 percent cut in foreign aid and a $234 billion cap on the issuance of new government bonds for the next fiscal year starting April. Public works spending will also drop by 10 percent.

The proposed cap on new government bonds has caused friction between Prime Minister Junichiro Koizumi and conservatives in his own party. Mr. Koizumi's critics say that only an increase in public spending can bring the economy out from its current recession the fourth in a decade.

But the prime minister has promised to curb public spending as part of his economic reform program. Japan has the largest public debt among industrialized nations, as a percentage of its gross domestic product.

Finance Minister Masajuro Shiokawa told reporters that the budget is efficient while keeping in mind the aim of implementing structural reform. "This budget is outlined to focus on seven areas in which we will carry out reform. We have focused on deregulation and administrative reform, as well making certain that there is a safety net in place," Mr. Shiokawa said.

The proposed budget is expected to be formally approved by the Cabinet Monday after a final round of talks between the Finance Ministry and other agencies.