By Michael Georgy
ISLAMABAD (Reuters) - Floods have ravaged Pakistan's economy, the prime minister said on Wednesday, with massive job losses and soaring inflation expected to hurt a nation whose stability is vital to the U.S. war against militancy.
Briefing the cabinet on the worst floods to hit impoverished Pakistan, Prime Minister Yusuf Raza Gilani expressed concerns over food security due to the prolonged damage to agriculture and said the social impact of the disaster was "serious."
"The floods have inflicted damage to the economy which may, by some estimates, reach $43 billion (27 billion pounds), while affecting 30 percent of all agricultural land," he said. Agriculture is the mainstay of the economy, with cotton the main cash crop, and the sector is one of the biggest sources of employment.
Raging waters swept from northwest Pakistan to the south just after the army said it had scored gains against Pakistani Taliban insurgents. There has been a lull in violence since the floods hit just over a month ago.
An explosion hit a Shi'ite procession in the Pakistani city of Lahore on Wednesday, a television station reported. Express 24/7 said six people were wounded.
Facing the prospect of long-term economic pain, Pakistan hopes the International Monetary Fund (IMF) will soften the terms of an $11 billion (7 billion pounds) loan. Pakistani and IMF officials are meeting in Washington to work out the impact of the floods.
"This economic loss will translate into massive job losses affecting incomes of thousands of families, which may have serious social implications," said Gilani, whose government was heavily criticised for its slow response to the catastrophe.
"The overall performance of agriculture consequently will be much lower this year and the next year. This loss will have a snowball affect on manufacturing, services and export sector. Most families face a real risk of income and employment losses."
The next wheat harvest is at risk after the floods destroyed more than 500,000 tonnes of seed stocks in Asia's third-largest wheat producer, the U.N.'s food agency said.
GRIM OUTLOOK
Pakistan is expected to register economic growth of just 2.5 percent because of the impact of flooding, the information minister said, trimming an earlier 4.5 percent target.
The budget deficit is expected to climb to 6-7 percent of gross domestic product in the fiscal year 2010/2011, compared with an earlier forecast of 4.5 percent.
Pakistan is also likely to miss its annual inflation target of 9.5 percent for the same fiscal year, with inflation likely to range between 15 to 20 percent, Gilani said.
Many Pakistanis, who lost homes, families and livelihoods, are furious at the government for not doing enough to help them.
The powerful military has taken charge of relief efforts, but Islamist charities, some linked to militant groups, have also stepped in, raising concerns they may exploit public anger.
British Deputy Prime Minister Nick Clegg said it could take Pakistan years to recover, with threats from water-borne disease and opportunistic militants. "The danger always is that you get groups who have an ulterior motive who provide aid to try to curry favour," he said after visiting an aid camp in the south.
The U.N. is concerned that water-borne diseases will affect millions, with nearly 540,000 cases of acute diarrhoea reported.
"It's warm and there are more terrible conditions for infection to spread. These conditions will continue for at least three to four months," said doctor Nadeem January
Pakistan, a key U.S. regional ally, is also embroiled in a deadly battle with Islamist militants.
In two days of air raids starting on Tuesday, Pakistani forces killed up to 62 militants, their family members and other civilians with no ties to the fighters, officials said. Such strikes have undermined public support for the army.
Washington, though, has repeatedly urged Pakistan to go after militant sanctuaries in the northwest saying these have helped boost the Afghan insurgency, now at its deadliest.
Testing ties further, Pakistan's army said on Wednesday it scrapped talks with U.S. military officials after a military delegation sent to Washington had to go through "unwarranted" airport security checks.
(Additional reporting by Zeeshan Haider and Augustine Anthony in Islamabad and Chris Allbritton and Rebecca Conway in Pabbi and Svetlana Kovalyova in Milan; Editing by Alex Richardson)
