WASHINGTON (CNN) - The federal budget deficit is projected to hit $368 billion in fiscal 2005, bigger than earlier forecasts, but then decline to $295 billion in 2006, according to new estimates from the Congressional Budget Office released Tuesday.

The number is worse than the CBO's previous forecast of $348 billion for the fiscal year that began Oct. 1, according to the budget office's forecast.

But the CBO also projected that overall, the economy will continue to grow at a healthy pace in 2005 and 2006. The agency is the nonpartisan budget arm of Congress.

The revised deficit number excludes the costs of military operations in Iraq and Afghanistan, as well as other parts of the administration's war on terrorism, according to the report.

Those costs, expected to add about $30 billion to the deficit this year and possibly more next year, would bring the total deficit to around $400 billion in the current fiscal year and well over $300 billion next year.

New legislation accounts for about three-quarters of the total projected deficit for 2005, most of that from recent laws that extend the president's tax cuts.

Provisions for funding for disaster relief, such as the $11.5 billion provided for hurricane victims, also swelled the deficit, according to the CBO estimates.

The rate of unemployment was also forecast to decline and interest rates expected to rise in the next two years as the economy grows, according to the report.