Finance  Minister Abdul  Hafeez Shaikh who  held crucial  negotiations  with the  International Monetary  Fund (IMF) told  the  Federal  Cabinet here  Wednesday, "We  will  have  to  drastically  slash domestic  expenditure and introduce fresh  taxation reforms including  withdrawal of  all  subsidies".

The new budget suggests  an  increase  of 110 billion  rupees in  Defense Budget. Fresh  taxation target  is  set for  736  billion  rupees  by  the  Federal Board  of Revenue  (FBR).

Inflation forecast, both  by  the  Finance Ministry  and the  IMF,  will remain  at 13 percent.

Estimates for economic growth have been downgraded, with the agriculture sector particularly badly hit. The floods have destroyed or damaged more than 1.7 million hectares (4.25m acres) of land, officials say.

Earlier, President Asif Ali Zardari said it might take more than three years for Pakistan to recover from the disaster and cost up to $15 billion US  dollars.

IMF Managing Director Dominique Strauss-Kahn recently said in Washington funds would be dispersed in "coming weeks."

Strauss-Kahn said discussions with a delegation led by Pakistan's finance minister on how to "reorganize" $1  billion IMF loan program would continue.

The IMF package has kept afloat an economy that was already fragile before the floods rampaged through the northwest to the south, damaging crops and infrastructure which Prime Minister Yousaf Raza Gilani has estimated could hit $43 billion, almost one quarter of last year's gross domestic product.