Revised National Pay Scale: Where will the money come from?

The cabinet approved the revised National Pay Scale 2026 on 31 August, ending almost a decade-long wait for civil servants in Bangladesh. The minimum basic pay in Grade 20 rises from Tk8,250 to Tk20,000, and for Grade 1 the basic has doubled to Tk1,56,000 from Tk78,000. Salaries in Grades 1 to 11 have doubled, and in Grades 12 to 20 the increase ranges from 115 to 142%. This pay scale is projected to benefit approximately 24 lakh current government employees and 9.25 lakh pensioners. Once fully implemented, the exercise will cost an additional Tk1,05,580 crore annually.

Predictably, this discussion has turned into a heated debate. One side argues that civil servants have waited long enough, whilst the other warns of fiscal mishap. But the dispute should not be about whether government employees deserve better compensation. Rather, it should be about how the state intends to finance a perpetual obligation.

The support for the pay scale increase is strong. The last pay scale was revised in 2015, and living costs have risen ever since. Inflation stood at 8.32% in July, and the 12-month average remains at 8.66%. Professor Mustafizur Rahman from the Centre for Policy Dialogue accepts the revision as logical, given that pay increased only marginally whilst inflation nearly doubled. Fahmida Khatun, erstwhile executive director of CPD, agrees but with a caveat: salary increase does not automatically cause inflation, but the way it is financed can.

The additional finance of Tk1,05,580 crore is roughly 11% of the Tk9.38 lakh crore budget for FY 2026-27, about 15% of the Tk6.95 lakh crore revenue target, more than 40% of the projected deficit of Tk2.43 lakh crore, and close to 1.5% of GDP. In terms of services, the annual increment is larger than the entire health allocation of Tk69,409 crore and almost 75% of the annual education allocation.

The phased design of salary disbursement softens the immediate shock, which is praiseworthy. Implementation runs in four steps between 1 July 2026 and 1 January 2028, with Grades 10 to 20 receiving half of their increase first. Finance Division officials have put the additional expenditure in the current budget at around Tk44,000 crore for employees, pensioners, and MPO-listed teachers. However, such phasing may increase the burden over years, as by 2028 the full bill will be due.

The major concern should be about the revenue side. Revenue collection faced a deficit of Tk88,000 crore in the last fiscal year whilst the target was Tk5,03,000 crore. The current budget assumes that revenue will rise from around 8% of GDP to 10.2% within one year. When a certain obligation meets an uncertain projection, the gap is filled by borrowing, by cutting development spending, or by printing money. Each choice has economic consequences.

Global evidence suggests caution rather than danger. A 2023 IMF study finds that public wage increases spillover into private wages and consumer prices, with stronger effects in economies where inflation is already high. Research on public sector employment and the wider economy finds similar results: what matters is the size of the adjustment and the method of financing. A moderate rise in a low-inflation economy is acceptable, but doubling nominal wages in an economy functioning at over 8% inflation and one of the lowest tax-to-GDP ratios in South Asia is another matter.

The timing also raises concerns. Bangladesh Bank cut the policy rate to 9.5% on 30 July, its first cut in six years, whilst the Asian Development Bank increased its inflation forecast for this fiscal year to 8.8%. The central bank has acknowledged that higher interest rates alone cannot fix supply-side problems, which is correct. However, a large and permanent increase in public consumption at the same time as falling interest rates requires clear coordination between the finance ministry and the central bank.

Some fear that traders will use the announcement as a reason to raise prices. However, blaming civil servants for inflation would be unfair because recent price increases have been largely driven by supply-side problems. Diesel prices rose by 15%, whilst petrol, octane and kerosene prices increased by around 20% between December 2025 and May 2026. Still, it would be unrealistic to assume that a visible doubling of public pay will not affect expectations, especially in Dhaka's rental and private education markets. The solution is not to stop the increase but to give consumer protection agencies reliable price data and take action against unjustified price changes.

There is an institutional problem as well. Bangladesh has revised its pay scale in 1973, 1977, 1985, 1991, 1997, 2005, 2009, 2015 and now 2026. Had the pay commission led by Mohammad Farashuddin been implemented with annual increments adjusted for inflation, the country would not have faced an eleven-year gap or needed such a large increase. Long delays turn necessary adjustments into sudden shocks. A rules-based system that reviews public pay every year or two based on inflation, productivity and fiscal capacity would spread the cost and help the finance ministry plan better.

Two commitments should support the gazette. First, the government should publish a financing plan that shows how it will fund the wage bill through 2028. The plan should explain which taxes will be expanded, which exemptions will be removed and which spending will be adjusted. The focus should be on broadening the tax base, not placing more pressure on the same small group of taxpayers. Second, the government should ensure that social protection and the Annual Development Programme do not become the main areas for cuts. The development budget is the easiest to reduce but the costliest to lose, because it builds the revenue capacity needed for the future.

The new pay scale need not pit government employees against the rest of society. Civil servants have a legitimate claim to compensation that reflects the cost of living. Citizens have an equally legitimate claim to know that the bill will not be settled through inflation, deferred debt or a hollowed-out development budget. The cabinet has announced the salaries. It now owes the country the financing plan.

Sketch: TBS

Mohammad Iftekharul Islam and Rassiq Aziz Kabir are academics and public policy analysts.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of The Business Standard.