Up to 20% dearness allowance for govt employees likely from July

Highlights

• Tk82,990cr allocated for public employees in FY25
• Allocation could reach Tk97,000cr in FY26
• DA alone to cause additional cost of about Tk7,000cr
• Increase rates to be determined based on grades
• 5% annual increment to discontinue

Government employees are likely to get up to 20% dearness allowance with effect from the fiscal 2025-26, starting in July, according to officials at the Finance Division.

They said the final rate of the allowance will be determined at a meeting scheduled for 20 May, presided over by Finance Adviser Salehuddin Ahmed.

The officials told The Business Standard that a provision for this allowance is expected in the upcoming budget. Preparatory work on the proposal is already underway, with initial suggestions reaching as high as 20%.

The 5% special incentive, introduced during Sheikh Hasina's administration, will be discontinued when the dearness allowance is implemented. This change could result in an additional expenditure of approximately Tk7,000 crore on the salaries and allowances of government employees.

When questioned about the potential inclusion of the allowance in the next budget, Md Mokhlesur Rahman, senior secretary of the public administration ministry, told TBS, "I do not wish to comment on this at this moment. A meeting will be held next week under the chairmanship of the finance adviser, who also heads the Public Administration-related committee."

Subject to the chief adviser's approval, the dearness allowance decision will be incorporated into the budget speech for the next fiscal year, the Finance Division officials said.

According to these initial proposals, granting a 10% allowance to grades 1-9 and 20% to the remainder would incur an extra cost of approximately Tk6,000 crore. Increasing the allowance for grades 1-9 to 15% while maintaining 20% for the others would raise the total expenditure to around Tk6,500 crore.

Following the fall of the Hasina government, a committee was established last December to consider providing a dearness allowance to alleviate the burden on government employees amid persistently higher inflation. Proposals were formulated suggesting a 20% dearness allowance for civil servants in grades 10 to 20, and between 10% and 15% for those in grades 1 to 9.

The committee held several meetings, with the Public Administration secretary suggesting it would be implemented from January.

However, economists close to government advisers voiced concerns about the initiative, given the financial constraints faced by the government during a period of high inflation affecting the general public. Some even personally contacted advisers to argue against the allowance. Consequently, the government retracted its decision to announce the allowance in January. At the time, the finance adviser said no decision had been made regarding the matter.

Efforts to appease discontent

Policymakers within the administration now believe that the reversal of the decision to grant the allowance, after the official formation of a committee for the purpose, has led to discontent within the public administration.

This is particularly evident among lower-paid officials and employees, which could negatively impact the government's image. As a result, the government is reportedly considering increasing the salaries and allowances of government employees in the upcoming budget, either through a dearness allowance or under a different designation.

The current fiscal year's budget allocated Tk82,990 crore for the salaries and allowances of government employees, representing 10.41% of the total budget. Various levels of the administration, which allegedly faced discrimination under the Awami League government, have seen multiple rounds of promotions. Additionally, Tk75 crore has been provided as compensation to 764 officials who retired during the previous administration and were reportedly deprived of promotions.

Ministry officials said the budget allocation for salaries and allowances typically increases by 6%-8% annually. Based on this, the allocation for FY26 could reach approximately Tk89,500 crore. If the dearness allowance is added, the total expenditure could potentially rise to a maximum of Tk97,000 crore.

The government typically announces a new pay scale every five years. However, the eighth pay structure, implemented in July 2015, stipulated that the government would no longer announce such structures. Instead, it included a provision for a 5% annual increment for all civil servants every July. It further said that if the inflation rate in any given fiscal year exceeds 5%, the annual increment rate would be equal to the inflation rate.

Prior to the last national parliamentary election, the then-prime minister Sheikh Hasina announced an additional 5% incentive alongside the regular 5% increment to appease government employees.