Pakistan's federal cabinet resigned on Wednesday to allow Prime Minister Yusuf Raza Gilani to set up a new, smaller cabinet and reduce government expenditure, officials said.

The country's opposition parties have long demanded that Gilani trim the size of his cabinet, one of the largest in the world, at a time when Pakistan is struggling to pay down its bills and is dependent on an International Monetary Fund loan programme.

Farahnaz Isphahani, a spokeswoman for the ruling party, said the dissolution of cabinet was made "to deal with the economic reality of Pakistan."

"It's necessary to have a smaller cabinet at this time," she added. 

Pakistan's already feeble economy was battered by floods last year that inflicted $10 billion in damage. Foreign aid has been slow in coming, in part because of concern about the government's ability and willingness to implement financial reform.

Political stability in Pakistan is crucial to the war effort in neighbouring Afghanistan and to combating militancy in Pakistan's northwestern ethnic Pashtun lands along the Afghan border.

Pakistan has a 54-member cabinet. The government plans to reduce the number of ministers by more than a third.

Key portfolios such as finance and foreign affairs are likely to be retained by their current holders, indicating the government's desire for continuity in its dealings with the US and the IMF.

Analysts, however, said the cabinet revamp would do little to address the structural problems the economy faced.

"This move may be good for politics or to make headlines but not really for the economy as the government has to make a more concerted effort in order to build up its credibility," said Asif Qureshi, director at Invisor Securities.

Gilani last month deferred plans to implement tax reforms including imposition of a reformed general sales tax (RGST) -- a key IMF condition for continued financial aid, to save his weak government from collapse after a key ally pulled out of coalition.

An $11 billion IMF loan programme has kept Pakistan's economy afloat since November 2008.

Despite trimming the cabinet, the government is unlikely to win support from the opposition for economic reforms as demanded by the IMF.

The main opposition party led by former Prime Minister Nawaz Sharif, and even some government allies,are opposed to the RGST and have demanded the government cut its expenditure and curb corruption as alternative measures. – Reuters