Bangladesh’s Budget Deficit and Salary Hike Debate

Persistent Deficit and Rising Borrowing

Bangladesh’s government regularly spends more than it collects in revenue, which results in a deficit budget almost every year. To cover this gap, it borrows heavily from both domestic and foreign sources. Over time, interest payments on these loans have become the largest single item in government expenditure.

Shifting Balance Between Recurrent and Development Spending

Public spending is broadly divided into recurrent (operational) and development expenditure. In recent years, recurrent costs have climbed steadily, while development allocations have shrunk. A large share of recurrent spending goes directly to salaries and allowances for government employees.

Ninth National Pay Commission Proposal

The Ninth National Pay Commission has suggested more than doubling government salaries and allowances. If implemented, recurrent expenditure would surge dramatically, leaving less room for investment in critical areas such as education, healthcare, and social protection. This could weaken the government’s ability to sustain its operational costs.

Inflation and Monetary Policy Challenges

Bangladesh has long struggled with high inflation. To contain it, the central bank has pursued a contractionary monetary policy, reducing the money supply to curb demand. While this approach has not fully solved the problem, it has prevented inflation from rising further.

A sharp increase in government salaries would inject more money into the economy, directly opposing the central bank’s restrictive stance. This raises the risk of renewed inflationary pressure, which would hit low- and fixed-income households hardest.

Revenue Shortfalls and Fiscal Strain

The Pay Commission recommends raising the minimum monthly salary from Tk8,250 to Tk20,000 and the maximum from Tk78,000 to Tk160,000. Implementing this plan would require an additional Tk106,000 crore.

At present, the government spends Tk131,000 crore annually on salaries, allowances, and pensions for 2.3 million employees and pensioners. This is financed from revenue income, but revenue collection consistently falls short of targets.

Revenue Collection Trends

• In the first half of the current fiscal year, the NBR targeted Tk 231,205 crore but collected only Tk 185,229 crore, leaving a gap of Tk 45,976 crore.
• In the previous fiscal year, the revised target was Tk463,500 crore, while actual collection stood at Tk370,874.3 crore — a shortfall of Tk92,626 crore.

Meanwhile, government spending reached Tk625,914 crore, with recurrent expenditure accounting for nearly 76% of the total. This imbalance forces the government to rely heavily on borrowing.

Debt Growth and Private Sector Impact

Over the past five years, government revenue rose by 35%, while public debt grew by 42%. In the most recent fiscal year, borrowing amounted to Tk 183,245 crore, crowding out private-sector investment.

If government salaries are raised significantly, pressure will mount on private employers to follow suit. This could destabilize the private sector, which drives most of Bangladesh’s economic activity.

Borrowing Dependence and Weak Revenue Strategy

The Bangladesh government has yet to introduce an effective plan to boost revenue quickly or fully tackle tax evasion. As a result, borrowing — especially from domestic sources — will continue to rise, putting further strain on private sector credit growth, which is already slowing.

Exercising Caution

The belief that higher salaries reduce corruption has not proven effective in practice. While government employees face inflation like everyone else, an excessive salary hike could damage the economy’s stability.

Any decision on pay increases must be taken with caution, considering fiscal realities, inflationary risks, and the potential impact on the private sector. Such a major move is best left to the next elected government.