The government’s expenditure in Bangladesh exceeds its revenue, which is why a deficit budget is formulated almost every fiscal year. To finance this deficit, the government borrows from both domestic and external sources. As a result, interest payments on these loans have become the single largest component of government expenditure.
Apart from this, the two major components of government spending are recurrent (operational) expenditure and development expenditure. In recent fiscal years, it has been observed that recurrent expenditure is rising, while development expenditure is declining. A significant portion of recurrent expenditure is spent solely on salaries and allowances of government officials and employees.
In such a situation, if the proposal of the Ninth National Pay Commission to more than double the salaries and allowances of government employees is implemented, recurrent expenditure will increase at an alarming rate.
This raises concerns that spending on development-oriented sectors such as education, health, and social protection will be further squeezed. Not only that, the government’s overall capacity to finance its recurrent expenditure may weaken even further.
Beyond this, another existing and almost lasting crisis in the economy could intensify. For a long time, high inflation has been one of the most serious challenges facing our economy. The government and Bangladesh Bank have taken numerous measures to rein in inflation. In particular, the central bank has adopted a contractionary monetary policy to control inflation.
Even after a prolonged slowdown in private sector investment and declining credit growth, the central bank has maintained this contractionary stance in the second half of the current fiscal year. One of the main objectives of this policy is to limit money supply in the market in order to curb demand, thereby bringing down the price level. Although these measures have not had a very strong impact on inflation, they have helped to contain further increases to some extent. The central bank has set a target of bringing inflation down to around 5% by the end of the current fiscal year.
In this context, increasing salaries and allowances of government employees would mean an expansion of money supply in the market, which directly contradicts the contractionary monetary policy stance.
This raises the risk of higher inflation in the future, further increasing financial pressure on low- and fixed-income groups. Under these circumstances, any decision regarding salary increases for government employees must be taken with due prudence, particularly in light of the government’s fiscal capacity and the inflationary pressure.
The Ninth National Pay Commission has recommended raising the minimum monthly pay scale from Tk8,250 to Tk20,000, while the maximum pay scale is proposed to be increased from Tk78,000 to Tk160,000. Implementing this proposal would require an additional Tk106,000 crore from the government expenditure kitty.
Currently, the government is already spending Tk131,000 crore to cover salaries and allowances for 1.4 million government employees and pensions for 0.9 million pensioners. This expenditure is financed from revenue income. However, as we all know, the government’s revenue situation is extremely weak. In no fiscal year has the revenue target been fully achieved.
The same pattern is evident in the first six months (July–December) of the current fiscal year. During this period, the National Board of Revenue (NBR) had set a revenue collection target of Tk231,205 crore, against which only Tk185,229 crore was collected, resulting in a shortfall of more than Tk45,976 crore. These figures were revealed in the latest revenue collection update published by the NBR itself.
In the previous fiscal year, the revised revenue target was Tk463,500 crore, but actual revenue collection stood at Tk370,874.3 crore -- Tk92,626 crore less than the target. During the same period, government expenditure was significantly higher.
According to the Finance Division, total government spending amounted to Tk625,914 crore, of which Tk474,143 crore was spent on recurrent expenditure, accounting for nearly 76% of total spending. This clearly shows that annual revenue is insufficient to fully cover recurrent expenditure, forcing the government to rely on borrowing.
Over the past five fiscal years, government revenue has increased by 35%, while public debt has grown by 42%. To finance the deficit, the government borrowed Tk183,245 crore in the most recent fiscal year (2024–25), which reportedly had a crowding out effect on the private sector too.
All these factors must be carefully considered before deciding to increase salaries and allowances of government employees.
Moreover, the tendency to rely on borrowing to meet additional expenditure will increase further. The reality is that the government currently lacks any effective strategy to rapidly boost revenue income. Nor has it been able to fully curb tax evasion. Consequently, increased borrowing -- particularly from domestic sources, will put additional pressure on the private sector.
Private sector credit growth is already on a downward trend. In such a situation, if government salaries are increased by more than double, pressure will also build to raise salaries in the private sector. This could disrupt the limited stability that the private sector has managed to maintain amid multiple recent economic challenges. It must be borne in mind that the bulk of economic activity in the country is conducted by the private sector.
Therefore, the government should refrain from taking any decision that would push this sector into a more fragile position and increase pressure on the overall economy. Before increasing government salaries by two and a half times, the government must seriously consider the implications for the private sector as well.
The often-uttered mantra of reducing corruption by increasing the salary of the government employees has never quite worked out. Government employees must be facing the inflationary pressure too - but a disproportionate increase of their salary and benefits may seriously impact the future of the economy and more so, this decision should be left with the next elected government.
Mamun Rashid is an economic analyst and Chairman at Financial Excellence Ltd.
