* Floods undermine economic growth targets
* Watching inflation
* Heavy crop damage
By Michael Georgy
ISLAMABAD, Aug 20 Pakistan is unlikely to reach its target of 4.5 percent economic growth due to the worst floods in its history, the Asian Development Bank said.
The flooding has made more than 4 million homeless. An estimated 8 million are in urgent need of humanitarian assistance [ID:nSGE67I05N] in a catastrophe almost certain to inflict long-term economic pain on Pakistan, an ally the United States sees as crucial to its campaign of fighting Islamic militancy.
Juan Miranda, ADB Director General for its Central and West Asia department, said the government would likely face slower economic growth.
"The probability of being more like that (three percent) rather than four is higher. If the damage out there is not as bad as we think it is, then of course it may still be four percent.
"Crops have been damaged. Infrastructure has been damaged. You can't sell stuff. You can't connect to another village. That cannot help the economic growth figure."
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Pakistan's floods, click
For a story on agricultural costs of floods [ID:nSGE67B050]
For an analysis of risks to watch in Pakistan, click
For a slide show, click link.reuters.com/sum54n
For more Pakistan stories, click [nAFPAK], or click
The floods marooned villages, destroyed power stations, roads and bridges and ravaged the mainstay agriculture industry just after the government had made progress in stabilising Pakistan through offensives against Taliban insurgents.
The ADB is a Manila-based multilateral bank.
In April, ADB said Pakistan's economic prospects over the next two years were predicated on a successful completion of its IMF programme, a gradual improvement in the security and energy situations, and sustained implementation of fiscal reforms along with political stability.
Pakistan turned to the IMF for an emergency package of $7.6 billion in November 2008 to avert a balance of payments crisis and shore up reserves. The loan was increased to $11.3 billion in July last year.
The IMF programme requires Pakistan to eliminate food and energy subsidies, increase electricity tariffs and implement value added tax on services to counter its fiscal imbalances and keep inflation in check.
Although the Pakistani government will have to divert resources to the flood relief effort, it should still work to implement economic reforms in the long term, said Miranda.
"It is important for everybody's interest, including those who have been affected (by the floods) that there is as much stability as possible, that the inflation rate goes down."
Miranda noted the economy was resilient in some ways because Pakistan had already made progress.
"There have been huge doses of discipline introduced since the economic reform programme. The stabilsation programme has been put in place. Expenditures are more balanced," he said.
"Inflation has come down. Maybe they want to get it down to single figures but it has come down to 12 percent at the moment."
Miranda said assessing the extent of damage the floods inflicted would not be possible until the end of September. Shortly after that, Pakistanis made homeless by the floods are likely to face a new set of hardships.
"The mammoth task ahead of us is now to do two things -- to face the winter and then face the reconstruction," said Miranda. (Editing by Alistair Scrutton)