The new pay scale is undoubtedly welcome news for government employees. Given the prolonged period of high inflation, rising living costs, and the erosion of real incomes, an adjustment in salaries was necessary. There should be little disagreement on that. But from the perspective of the state’s economy, the question lies elsewhere.
Does the government have the capacity to bear an additional permanent expenditure of Tk 105,580 crore a year? An even bigger question is: where will this money come from, and ultimately, who will bear the burden?
This is not a one-time expense. Once the new salaries and pensions take effect, the government will have to carry the cost in the budget every year. Implementing the changes in phases may reduce the initial shock somewhat, but it will not reduce the overall liability. Salaries and pensions are expenditures that, once increased, are extremely difficult to cut. If revenue falls, development projects can be delayed and some purchases can be postponed, but cutting salaries is almost impossible.
As a result, future budgets will become even more rigid. If the need arises to address fuel shortages, natural disasters, restructuring of the banking sector, social protection, or new infrastructure investment, the government will have less room to spend independently.
That is why the first question should be about financing. The safest route is to increase revenue. But Bangladesh has long struggled with weak revenue collection. Ambitious targets are set, but large shortfalls remain at the end of the year. In this reality, adding a major permanent expenditure will put even greater pressure on the government.
Before implementing the pay scale, it is necessary to broaden the tax base, curb tax evasion, reduce unjustified tax exemptions, ensure effective taxation of high incomes and wealth, and strengthen technology-driven monitoring of the revenue administration. Without revenue reforms, higher salaries could ultimately lead to greater borrowing, cuts in spending on other sectors, or a larger budget deficit.
There is another risk here. If mandatory expenditures continue to grow faster than government revenues, the government’s policy flexibility will gradually diminish. It will then become difficult to allocate funds quickly in response to a new crisis. The budget will increasingly become constrained by the burden of fixed expenditures such as salaries, pensions, interest payments, and subsidies. Over the long term, this trend could weaken economic management.
Cutting spending in other sectors to fund higher salaries would be an even worse solution. If allocations for education, healthcare, social protection, climate resilience, or productive infrastructure are reduced to raise government salaries, the effort to address one crisis will simply create another. Bangladesh already spends less than it needs to in these sectors. A state that pays its employees more while spending less on schools, hospitals, skills development, transportation, or disaster preparedness may improve the welfare of one group, but it will weaken the productivity of the economy as a whole.
Excessive reliance on bank borrowing is equally concerning. If the government borrows large amounts from the banking system, lending to the state can often become safer for banks than lending to the private sector. This can make it harder for entrepreneurs and industrial enterprises to obtain credit, keep interest rates elevated, and further weaken private investment. This is where the central dilemma lies. The state may increase the incomes of its employees, but if financing that spending raises borrowing costs for businesses, then in exchange for today’s relief, tomorrow’s investment, employment, and economic growth could suffer.
The risk of inflation cannot be ignored either. Higher salaries will increase consumer spending, which could give some momentum to business activity. That is a positive aspect. But if the supply of goods and services does not increase at the same pace, excess demand could once again put upward pressure on prices. In that case, although government employees’ nominal incomes will rise, inflation could eat away part of the gain in their real purchasing power.
An even bigger problem is that millions of families outside government employment will not receive the same income increase, yet they too will face higher prices. If the government turns to central bank financing to cover the shortfall, this risk will increase further.
The most important social question concerns the private sector. Government employees are organized, visible, and relatively influential in policymaking. Most private-sector workers do not enjoy the same position. Their wages depend on their employers’ revenues, productivity, profits, market conditions, and competition. Many small and medium-sized businesses will not be able to raise wages enough to keep pace with a large increase in government salaries.
As a result, the income gap between public- and private-sector employment may widen. Dissatisfaction among low- and middle-income private-sector workers could increase, making it harder to retain skilled employees and creating new forms of inequality in the labor market.
This inequality is even more pronounced because a large share of Bangladesh’s workers still remain outside formal wage protections. Effective minimum wages do not exist in many sectors. Security is even weaker in the informal sector. Under such circumstances, the total income of a lower-grade government employee could exceed that of many young graduates, junior professionals, or skilled private-sector workers.
The government cannot administratively determine salaries at private companies, nor would that be desirable. But it is the government’s responsibility to create an environment that promotes investment, productivity, skills, competition, and formal employment. Overall inequality in the labour market cannot be solved through government salary policy alone.
Another widely used argument is that higher salaries will reduce corruption and improve the quality of government services. This argument is not new. The same point was made when the previous pay structure was introduced. The reality is far more complex. Better pay may reduce some financial pressures, but corruption is not simply a consequence of low salaries.
Abuse of administrative power, weak oversight, inadequate internal controls, uncertainty of punishment, and poor accountability are also major factors. Therefore, if salaries are increased without strengthening performance evaluation, auditing, digital services, service standards, and effective measures against corruption, citizens may end up with nothing more than a more expensive bureaucracy.
What is needed here is a long-term solution. The Pay Commission headed by Mohammad Farashuddin proposed a rules-based framework for adjusting salaries in line with inflation, alongside annual increments. That idea should be reconsidered.
Instead of waiting ten or eleven years and then raising salaries in a large jump, a transparent and predetermined adjustment mechanism linked to inflation, revenue capacity, productivity, and the broader macroeconomic situation would be far more rational. This would reduce political bargaining, avoid sudden budgetary shocks, and make medium-term budget planning more credible.
The new pay scale, therefore, should not be viewed simply as a decision to increase salaries. It is a major test of the government’s financial management. During a prolonged period of inflation, protecting the real incomes of government employees is necessary. But if that protection places excessive pressure on taxpayers, private-sector workers, entrepreneurs, future investment, or public services, then the problem will not be solved; the burden will merely be shifted from one place to another.
The government’s priorities should now be revenue reform, controlling unnecessary expenditure, limiting dependence on borrowing, and strengthening administrative accountability. Without these measures, the new pay scale may bring relief to some people, but it could create new risks for the economy in the form of increased debt, inflation, reduced fiscal capacity, and widening income inequality. Ultimately, the question is not whether raising salaries is right or wrong; the question is whether Bangladesh can finance it sustainably.
● Selim Raihan is a professor in the Department of Economics at the University of Dhaka and Executive Director of SANEM.
• The views expressed here are those of the author.
* This article appeared in Prothom Alo print and online and has been translated by Ayesha Kabir for Prothom Alo English Online