Pakistan flood-hit economy may see 0-2% growth

The worst floods in decades could knock down Pakistan's economic growth for fiscal 2010/11 to between zero and 2%, Pakistani officials said on Monday, fuelling concern about the country's stability.
The Asian Development Bank, assessing flood damage and Pakistan's needs along with the World Bank, said last week economic growth could be 3%. The finance ministry said the country would miss this year's 4.5% GDP growth target, but did not give another figure. The economy grew 4.1% last year.
Sakib Sherani, a senior adviser to the finance ministry, said there was a whole range of growth estimates which would be revised once the actual impact of the floods became clear.
"We think zero percent is the lower bound of these estimates," Sherani told Reuters, adding that this was his own estimate.
He said the zero growth estimate was based on the economic impact of the damage caused to key crops and livestock, adding an estimated 25% of the cotton crop has been affected.
The textile industry, which accounts for more than 50% of total exports, depends on the cotton crop.
Drastically lower economic growth would be a major cause of concern for the Pakistani government and the United States, which wants its ally as stable as possible because it is a frontline state in Washington's war against militancy.
Pakistan's president and foreign minister have expressed concern that Islamic militant groups would exploit the widespread suffering to gain recruits.
Islamist charities, some with suspected links to militant groups, have been more effective than the government in providing relief to floods victims.
The IMF will review Pakistan's budget and macroeconomic prospects following catastrophic flooding during talks with senior Pakistani officials in Washington starting on Monday.
The meetings are set to focus on the future of Pakistan's $10.66 bln IMF programme agreed upon in 2008. If the IMF agrees to ease the programme's targets, or extends the repayment period that would ease the government's financial burdens.
Reconstruction is likely to cost billions of dollars, burdening an economy that was already fragile before the waters raged from the northwest to the south, destroying villages and key infrastructure and making more than 4 mln homeless.
Sherani said inflation could reach as high as 25%, compared with the 2010/11 target of 9.5%.
He said lower commodity prices could prevent prices from spiking up. "We will have to import essential items and if international commodity prices go down, then inflation at 25% will be less probable," he said.