LAHORE: Substantial industrial closures and production and job cuts are being reported from across Punjab as the federal government executes its macroeconomic stabilisation programme to address the trio of crises — fiscal gap, current account deficit and inflation — under the oversight of the International Monetary Fund (IMF).

But is it fair to blame the IMF — which bailed out Pakistan with its $7.6 billion balance-of-payments assistance only last month — for the decreasing industrial output and job losses in the province and elsewhere in the country? Most businessmen and economic experts do not consider the Fund responsible for the problems facing the manufacturing sector.

“The industry has been in deep trouble for quite a long time now. We have been cutting output and jobs for several months now because of the persisting energy shortages. Even today we have no electricity, no gas and no oil to burn for keeping our plants operational,” says a leading textile exporter, who did not want to be identified, from Lahore.

“Our production had been cut by 50 per cent because of the energy shortages long before the IMF appeared on the scene to bail out the government,” he claimed.

A leading auto vendor said most auto parts producers in the province had cut production by over 60 per cent and laid off workers to save costs. “The cost of doing business has grown manifold over the last one year because of the increasing power prices and credit costs. On top of that the demand for cars has nosedived, leaving us with no option but to cut production and jobs,” he said.

The reports suggest that hundreds of small to medium sized manufacturers have already gone out of business in the province due to the energy shortage as they could not afford alternate arrangements.

“The small and medium enterprises (SMEs) in the province are finding it impossible to stay in the business because of long power cuts and reduced domestic and global demand for their products. The loss in production means that they cannot even recover their costs as they work for very small margins,” said a Small and Medium Enterprises Development Authority (Smeda) official, who refused to give his name.

While the manufacturing suffers due to painful economic stabilisation, the provincial finance managers are unsure as to how the public finances would be affected by the IMF programme.

“It is too early to say anything on the possible impact of the IMF conditions on the provincial finances right now,” said a senior Punjab finance department official. “The full impact will become visible at the end of the financial year,” he added.

He pointed out that the provinces largely depended upon federal transfers from divisible tax pool under the National Finance Commission (NFC) award. “The IMF conditions require Pakistan to increase its tax revenues. If that happens, the provincial share in the divisible tax pool will automatically go up and we will stand to receive more funds than estimated,” he said.

But as the industry goes down, the experts insist that it will be difficult for the government to even meet its tax target of Rs1.25 trillion for the year let alone increase it to Rs1.36 trillion as asked by the Fund. “In that case, the provinces will lose money and forced to cut their development and non-development expenditure,” the official said.