After the fall of the Hasina government, the interim government of Dr Yunus announced a dearness allowance amid protests by public servants. The decision coincided with the decision to raise VAT on more than 100 products to boost revenue. It later dropped the plan after facing criticism from economists and the business community. The interim government subsequently formed a pay commission, despite no fresh demand from public servants.
Around 33.25 lakh direct beneficiaries represent only a small proportion of the total population numbering 18 crore. Private-sector employees may not receive corresponding wage adjustments immediately. If prices rise before private-sector wages respond, the policy could unintentionally widen the real-income gap between public and private employees. The Minimum Wage Board for workers in Bangladesh are demanding a revised structure that is considered severely overdue under the newly amended labour laws.
The new pay scale would reportedly strengthen public servants’ ‘financial security and motivation ‘. The salaries of employees in autonomous institutions, state-owned enterprises, project-based and outsourced positions, as well as teachers, journalists and private-sector workers, remain unchanged; disparities and dissatisfaction among different professional groups could widen.
The Cabinet’s approval on 31 August 2026 of the National Pay Scale 2026 is a major public-policy decision. The new structure raises the minimum basic salary to Tk20,000 and the highest to Tk156,000. Basic-pay increases will be phased in between July 2026 and July 2027, with allowances becoming effective from January 2028. When fully implemented, the scheme is expected to benefit about 24 lakh military and civilian employees and around 9.25 lakh pensioners and other eligible beneficiaries, at an estimated additional annual cost of approximately Tk105,580 crore. Once all allowances take effect in January 2028, annual government spending on salaries and allowances will reach nearly Tk200,000 crore – roughly half of the revenue collection last fiscal year.
Under the new scale, basic pay for the lowest, 20th grade – where employees with Class VIII education are recruited – will rise 142%, from Tk8,250 to Tk20,010. This represents a 388% increase over the past 17 years.
The adjustment is understandable after prolonged inflation and erosion of real purchasing power. However, it should not be viewed merely as an employee-welfare measure. It is simultaneously a fiscal, monetary, labour-market, consumer-welfare and competition-policy event.
The new pay scale may produce several positive effects:
Restoration of purchasing power: higher salaries can partially offset the erosion of real income of the government employees caused by inflation.
Improved morale and productivity: better compensation may strengthen motivation, retention and service delivery in the public sector.
Support for domestic demand: increased disposable income may benefit retail, housing, transport, education and service sectors.
Pensioner protection: retirees, who are particularly vulnerable to rising living costs, may receive greater financial security.
Wider economic stimulus: higher consumption may encourage production and business activity if supply can respond adequately.
These benefits, however, depend heavily on how the programme is financed and how markets respond. Increasing salaries should drive up inflation, raise production costs for businesses, and potentially lead to job cuts or reduced hiring.
The FY2026–27 national budget is approximately Tk9.38 lakh crore, with a deficit of around Tk2.26 lakh crore. The additional cost of the pay scale is therefore substantial.
Key concerns include: excessive domestic borrowing may crowd out private investment and raise borrowing costs; monetary financing or excessive liquidity expansion may increase inflation and exchange-rate pressure; recurrent expenditure may reduce fiscal space for infrastructure, health, education and social protection; if productivity does not improve alongside higher remuneration, the long-term fiscal burden may become difficult to sustain.
Bangladesh’s point-to-point inflation remained relatively high at 8.32% in July 2026. Higher government salaries can increase demand for food, housing, transport, education and consumer goods. If supply expands accordingly, inflationary pressure may remain manageable. If supply remains constrained, however, additional purchasing power can translate quickly into higher prices. There is also an important distributional issue. The phased implementation is therefore economically sensible, but implementation should be accompanied by continuous monitoring of inflation, supply conditions and market behaviour.
The Bangladesh Competition Commission (BCC) should not attempt to control general inflation or treat every price increase as anti-competitive. Its role begins where evidence indicates market manipulation or anti-competitive conduct.
A coordinated response could include: establishing a temporary BCC ‘Pay Scale Market Watch’ covering food, edible oil, transport, housing-related materials, medicines, energy, telecommunications and other sensitive sectors; comparing prices, inventories, supply, market concentration and profit margins before and after each implementation phase; strengthening intelligence-sharing among Bangladesh Competition Commission (BCC), Directorate of National Consumers’ Right Protection (DNCRP), Bangladesh Bank (BB), Director General of Drug Administration (DGDA), Bangladesh Entergy Regulatory commission (BERC), Bangladesh Telecommunication Regulatory Commission (BTRC), Bangladesh Food Safety Authority (BFSA), Bangladesh Standard and Testing Institute (BSTI) and relevant ministries; All the these authorities are responsible to look after the change of prices; enabling BCC to investigate cartels, coordinated pricing, market allocation and abuse of dominance.
Furthermore, enabling DNCRP to address overcharging, misleading practices and consumer-rights violations; enabling DGDA to monitor medicine pricing and availability; enabling BERC to assess whether energy tariff pressures reflect genuine costs; enabling BTRC to monitor telecommunications charges and unjustified parallel pricing; enabling BFSA and BSTI to protect food safety, quality, standards, weights and measures; establishing an inter-regulatory early-warning and referral mechanism for unusual price movements, shortages or parallel pricing; and publishing periodic market-impact assessments to discourage speculative or coordinated exploitation.
Bangladesh Bank has a central responsibility. Fiscal expansion, liquidity management, credit conditions and inflation control must move in the same direction. Otherwise, market regulators may be left managing symptoms created by a wider macroeconomic imbalance. The guiding principle should therefore be: ‘One market, different mandates, coordinated response.’
The National Pay Scale 2026 may be socially justified for a small segment of the population and economically beneficial for a small part of the total population, but its success will depend on what happens after salaries increase. If higher pay improves living standards, productivity and domestic demand without destabilising prices, the reform will achieve its purpose. If, however, the additional purchasing power is absorbed by inflation, artificial shortages, cartel pricing or fiscal stress, the nominal gain may quickly disappear.
The policy challenge is therefore not simply to pay public servants more, but to ensure that the economy can sustain that increase fairly. A successful pay scale should raise real living standards, not merely raise nominal salaries while the market quietly takes the benefit back.
The preferable approach is therefore to finance the increase through stronger revenue mobilisation, expenditure prioritisation, improved tax compliance and reduction of wasteful public spending, rather than excessive borrowing or monetary expansion.
The views expressed in this article are solely those of the author
The writer is the CEO, Bangla Chemical & Legal Economist. E-mail: [email protected]
