A proposed pay hike of as much as 142 percent for civil servants clashes with the government’s austerity measures adopted after the 2024 uprising.
On the one hand, the interim government is engaged in belt-tightening, slashing development projects and squeezing the money supply to tame persistent inflation. On the other hand, a state-appointed commission has just recommended a mind-boggling pay rise for civil servants that would double the government’s recurring wage bill. For a treasury already straining under the weight of debt and missed revenue targets, the proposal looks like a fiscal landmine waiting to explode (if implemented).
The rationale behind the Ninth National Pay Commission’s report, submitted last week by former finance secretary Zakir Ahmed Khan, is not completely unwarranted. Civil servants have not seen a pay revision in a decade, during which their purchasing power has been eroded by inflation.
However, the mathematical reality is unforgiving. Implementing the new pay structure will require an additional Tk 1.06 lakh crore annually. This is on top of the Tk 1.31 lakh crore the state already spends on 14 lakh employees and nine lakh pensioners.
To put this largesse into perspective, the proposed increase alone is roughly 2.5 times the entire national health budget for the current fiscal year.
The disparity in priorities is glaring: while the health sector fought to secure a nominal increase of just Tk 501 crore -- a pittance in real terms -- the bureaucracy is eyeing a windfall. The scale of the distortion is equally visible elsewhere: the pay hike is equivalent to almost half (44 percent) of the total Annual Development Programme and would devour a fifth of the government’s operating expenditure.
The pay hike is a contradiction in terms for a government committed to a “contractionary” budget. The ADP has already been trimmed by 13.2 percent to lower the deficit.
The verdict from Bangladesh Bank Governor Ahsan H Mansur was unsparing. He told business leaders at an event yesterday that the salary hike would compel the state to borrow heavily from banks. “Is that going to help reduce inflation? No,” he said. Taming prices to the desired level, he warned, would remain a distant dream.
The financing options range from the improbable to the disastrous. The National Board of Revenue (NBR) posted 14 percent growth in collection in the first half of the fiscal year, but still missed its target by Tk 46,000 crore.
With the tax-to-GDP ratio languishing at historic lows, a revenue-funded solution seems fanciful -- an irony seemingly lost on the pay commission’s chief, Zakir Ahmed Khan, who is himself a former chairman of the revenue board.
As Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, points out, financing recurring expenditures through debt is economic heresy.
“Where will the money come from?” he says.
The government cannot print money without fuelling the very inflation it seeks to quash. Foreign agencies do not lend for public sector salaries. And heavy borrowing from the banking sector would crowd out private sector credit growth, which is already subdued at 6.58 percent.
It will further stifle the job creation needed for unemployed graduates.
MK Mujeri, a former director general of the Bangladesh Institute of Development Studies, argues that the economy is simply not ready. The government’s debt dependency is already creating risks; adding a permanent trillion-taka obligation is reckless. He suggests a dearness allowance would have been a prudent stopgap, rather than a full-blown pay commission, which has now raised expectations that the exchequer cannot meet.
There is also the question of equity. Dr Iftekharuzzaman, executive director of Transparency International Bangladesh (TIB), brands the proposal as “not implementable.”
In a country facing money scarcity, he argues, the burden of bureaucratic enrichment will ultimately fall on the general public through higher inflation and taxes.
The common refrain that higher pay reduces corruption is, in his view, a fallacy.
Historical data suggest the rate of bribery often rises in tandem with salaries. Unless accompanied by strict asset disclosures -- a condition rarely enforced -- the hike is merely a “larger bill for the same results.”
The spillover effects would be severe. A hike in government pay exerts pressure on the private sector and autonomous institutions to follow suit, creating a wage-price spiral that firms, lacking the government’s fiscal immunity, cannot afford.
Belatedly waking up to the fiscal danger, the interim administration has offered an explanation. Muhammad Fouzul Kabir Khan, the power and energy adviser, told journalists that the commission’s report is not binding.
The authority to accept, revise, or bin the proposal, he now insists, rests entirely with the next elected government. The current administration merely facilitated the process to address long-standing demands, he says.
This may be politically astute, but leaves a burden for whoever comes next. The next elected government will have to manage the soaring expectations of a powerful civil service against the hard reality of the treasury.
Zahid Hussain suggests a modest hike weighted towards lower-tier employees might be financeable, but anything resembling the commission’s full proposal is a risk. By some estimates, inflation has eroded civil servants’ purchasing power by 18-20 percent since the last pay review in 2015. Yet even a modest adjustment to match this, a hike of 25 percent, will add some Tk 25,000 crore to the wage bill.
