The plan to raise government employees’ salaries by up to 100 per cent risks adding to economic pressure at a time when revenue collection is weak, industries are struggling with an energy crisis and private investment remains subdued.
The higher salaries may have to be financed through borrowing or cuts to other sectors, economists warn, potentially increasing the government’s debt burden while squeezing spending on development and essential services.
The Tarique Rahman administration is moving to implement the new pay structure amid mounting economic pressures. Industrial production is being disrupted by energy shortages, high interest rates are discouraging private investment and revenue collection remains below target.
Economists say the government should reconsider the timing of the proposed salary increase and wait until its fiscal position improves.
Zahid Hossain, former lead economist of the World Bank’s Dhaka office, said the government must consider whether it could sustainably afford the additional expenditure.
“There is no capacity at present. By capacity, I mean whether you can do it based on revenue collection. That has not happened yet. You cannot pay salaries by borrowing,” he said.
While presenting the national budget in parliament on 11 June, Finance Minister Amir Khosru Mahmud Chowdhury announced that a new pay structure would be introduced from the FY27. He said government employees had been working under the same pay structure for nearly 11 years, while inflation had significantly increased the cost of living.
The Ninth Pay Commission has recommended raising the minimum basic salary to Tk20,000 and the maximum to Tk1.6 lakh. Full implementation of the recommendations would require an additional Tk1.06 lakh crore annually, according to the commission.
The FY27 budget allocates Tk89,836 crore for salaries and allowances for government officials and employees. Finance Ministry officials said the proposed 100 per cent increase would translate into an actual rise of about 70 per cent, requiring an additional Tk62,887 crore.
The government has allocated Tk44,000 crore for partial implementation of the new pay structure in the current fiscal year.
The government’s weak revenue position is another major concern.
National Board of Revenue (NBR) collected Tk4,15,473 crore in FY26 against a target of Tk5.03 lakh crore, falling Tk87,000 crore short.
For FY27, the government has set an NBR revenue target of Tk6.04 lakh crore. But in July, the first month of the fiscal year, NBR collected Tk23,825 crore against a target of Tk38,880 crore, leaving a shortfall of Tk15,055 crore.
The energy crisis could make the revenue target even harder to achieve. Factories are shutting down or cutting production because of gas shortages, while weaker domestic production and sales could reduce tax and other revenue collections.
At the same time, the government is spending more to secure energy supplies, further stretching its finances.
Financing the pay rise through bank borrowing could also put pressure on private-sector investment.
Private-sector credit growth fell to a record low of 4.47 per cent at the end of June. Greater government borrowing from banks could further restrict credit available to businesses, potentially weakening investment and job creation.
Defending the move, Rashed Al Mahmud Titumir, PM’s adviser on finance and planning, however, said borrowing would be considered if necessary.
Speaking to journalists at the Secretariat on Thursday, he said the process of implementing the new pay structure was moving forward, although the timing and number of phases would be decided by the Cabinet.
“To arrange funds for the new pay scale, revenue mobilisation will be increased and, if necessary, loans will also be taken,” Titumir said.
Economist Zahid Hossain, however, warned that borrowing would create another recurring burden through interest payments.
“That means if you increase one thing, another will automatically increase. How will you manage both of them in the future?” he said.
He said the government could face a risk of falling into a debt trap as higher salaries would increase operating expenditure while borrowing would raise interest costs.
If the government avoids borrowing, it may instead have to cut operating expenditure or reduce allocations for development projects in sectors such as education and health.
Any such cuts, Zahid said, would raise another question over which sectors should bear the burden and what would happen to those who depend on spending in those areas.
Economist M Masrur Reaz said there was no dispute over the need to improve public servants’ salaries, which he said were already low compared with market rates.
But he also believes the timing is wrong.
“Revenue collection is already low. If salaries are increased now, dependence on borrowing to finance the increase will rise further,” the economist said. “Now is not a good time to increase salaries.”
