* Amended budget seen agreed before end of month
* Deficit will move back closer to 3.6 pct
* Both recurrent and capital spending to be tightened
(Adds details, quotes)
By Nick Tattersall
LAGOS, May 3 Nigeria's government is in talks with parliament over the country's 2011 budget proposal and expects to agree an amended version with a narrower deficit within weeks, the head of the budget office said on Tuesday.
President Goodluck Jonathan initially proposed a 4.226 trillion naira ($27.32 billion) budget in December but parliament inflated the spending plans, passing a 4.972 trillion naira version three months later.
Government has said the 2011 budget is supposed to mark the beginning of a period of fiscal consolidation in sub-Saharan Africa's second biggest economy and Finance Minister Olusegun Aganga described the amended version, which would push the deficit to over four percent, as "unimplementable".
He vowed in March to take the issue up with parliament.
"We are very, very deep in the negotiations, we have gone very far," Bright Okogu, director general of the budget office, told reporters on the sidelines of an International Monetary Fund (IMF) event in the commercial capital Lagos.
"We have both recognised in all our preliminary discussions that there is a need to come back to a more realistic budget deficit level," he said.
The original budget plan presented by Jonathan implied a deficit of around 3.6 percent. Okogu said the final version would push the deficit "back in that direction".
Presidential, parliamentary and state governorship elections last month disrupted the pace of negotiations but Okogu said he was optimistic agreement would be reached before the end of the current administration on May 29.
"Both sides recognise that this has to be sorted out before the new parliament comes into being, so we have a very tight target that we are both working towards," he said.
Okogu said the tightening would come from both recurrent and capital expenditure, although care would be taken not to impact any badly-needed infrastructure or other capital projects.
"Some of it will be overheads for example that were increased a little, and some of it will be capital," he said.
"We are going to be very careful. (Projects) that do not have proper designs, are not properly costed, we want to work with the National Assembly to see if they can be given attention at a future date," he said.
More than half of the planned spending in the version passed by parliament is earmarked for recurrent expenditure, meaning Africa's most populous nation is spending more on keeping government running than on badly needed new infrastructure.
Analysts had voiced concern about the state of Nigeria's public finances in the run-up to April's elections after foreign currency reserves dwindled and oil savings were eroded.
The central bank raised its benchmark interest rate by a surprise full percentage point to 7.5 percent in March, partly in a bid to ward off the effect of rising government spending ahead of the elections.
Jonathan won the presidential vote but the ruling party saw its parliamentary majority weaken and lost control of several states. Although there were cases of ballot box snatching and voter intimidation in some areas, the polls were generally deemed to have been Nigeria's most credible in decades. (For full Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Editing by Joe Brock)