Tanzina Fardoush
Oniket Research Group
Without Pension Reform Alongside the Pay Scale, the Equation Remains Incomplete
A government employee’s working life ends with retirement, but their expenses do not. In many cases, medical costs, medicines, dependent family members and the need for financial security increase with age. Therefore, pensions cannot be treated as a separate issue when discussing a new pay scale. An increase in basic salary has long term implications for the pension structure as well. As a result, today’s salary decisions can affect government expenditure for decades to come.
What is needed here is pension indexation, meaning a reasonable adjustment of pensions in line with inflation or a specific cost of living index. For a retired person, Tk 30,000 twenty years ago does not carry the same value as Tk 30,000 today. If the nominal pension remains unchanged while its real purchasing power declines, the state cannot fully meet its long-term social responsibility towards its former employees.
Is Government Employment Still Competitive for the Best Talent?
If the ninth pay scale is viewed only from the perspective of increasing the income of existing employees, an important question will be overlooked: how attractive is government employment for the talented workforce of the next generation?
A skilled software engineer, doctor, engineer, economist, lawyer, researcher or technology professional may find different levels of income and opportunity in the private sector or international labour market. Compared with these opportunities, the competitiveness of total compensation in government employment, the working environment, the pace of promotion and professional independence need to be assessed.
Research by the International Monetary Fund has also highlighted the importance of comparing public sector compensation with the private sector and maintaining competitive remuneration. If the state wants to retain the best talent, a secure job alone is not enough. What is needed is fair pay, recognition of skills, faster promotion, research opportunities, training, professional independence and social status. Otherwise, the challenge of retaining talent may continue even after salaries increase.
The Simple Equation That Higher Salaries Will Reduce Corruption Can Be Misleading
A common argument in favour of increasing government salaries is that better pay will reduce corruption. The argument has an economic basis. If an employee’s legitimate income is far below the cost of their standard of living, the temptation to seek unethical income may increase. But treating this as the only cause would be a mistake. Corruption is not simply the result of low salaries.
It is also linked to institutional accountability, certainty of punishment, transparency in recruitment and promotion, the extent of administrative authority, political influence, opportunities for corruption and monitoring mechanisms. Therefore, the ninth pay scale can be viewed as one component of corruption prevention, but not as a complete solution. Higher salaries may reduce the incentive for corruption, but if opportunities for corruption and impunity remain, integrity cannot be bought through salary alone.
Where Are the Real Costs for Women Government Employees?
Another important but largely overlooked issue in discussions about the government pay structure is the specific cost of living faced by women employees. For working women, safe transportation, childcare, distance to the workplace, maternity, daycare, care for elderly family members and the burden of dual responsibilities are all economic realities.
The same salary may have equal nominal value for two employees, but their actual expenses may not be the same. Therefore, future compensation structures should consider not only equal pay for men and women, but also workplace benefits that respond to the practical needs of women employees.
To make government employment more supportive of women, facilities such as childcare, safe transportation, post maternity employment support and flexible working arrangements can be considered as part of a broader compensation policy.
Additional Expenditure of Tk 105,580 Crore: The Question Is Not Only How Much, but Where Will It Come From?
One of the biggest questions surrounding the new salary structure is its source of financing. According to information published in the Ministry of Finance’s information database, implementing the new structure is expected to require approximately Tk 105,580 crore in additional annual government expenditure.
Where will this money come from? By increasing revenue? By raising the tax to GDP ratio? By reducing expenditure in other sectors? Through borrowing? Or by increasing the budget deficit?
A basic principle needs to be kept in mind here: salary increases are not inherently a problem. Salary increases financed through unsustainable means can create problems. Research by the International Monetary Fund indicates that if the government wage bill grows too rapidly, it can affect fiscal balance, the structure of public expenditure and the broader economy.
Therefore, a Medium-Term Wage Bill Framework should be published alongside the new pay scale. Such a framework could show, for at least five years, the total salary expenditure, total human resource expenditure including pensions, the share of revenue allocated to these costs, the share of GDP involved, the financial impact of new recruitment and the sectors from which the expenditure will be financed.
Will Higher Salaries Increase Inflation?
The answer to this question is not straightforward either. Higher salaries increase people’s purchasing power, which may increase demand. But blaming government salary increases alone for inflation would be an economic overstatement.
Inflation is influenced by many factors, including money supply, exchange rates, import prices, food supply, energy prices, market structure, fiscal deficits and expectations about future inflation.
Therefore, the new pay scale should not be viewed as the sole cause of inflation. Instead, the question should be how the financial impact of higher salaries can be managed in a way that increases real income without unnecessarily intensifying inflationary pressure. This requires coordination among fiscal policy, monetary policy and wage policy.
A Living Wage Is Not the Same as a Minimum Salary
The minimum basic salary under the new structure is Tk 20,000. This is an administratively determined figure. But the income required to provide an employee’s family with a dignified standard of living is a different question. The two concepts should not be treated as the same. A minimum salary is an administrative decision.
A living wage reflects the actual cost of living. The number of family members, rent, children’s education costs, medical expenses and transportation costs all matter. Simply setting a national minimum salary without considering these factors does not provide a clear picture of an employee’s actual standard of living. Therefore, one of the responsibilities of a future pay commission should be to develop the national cost of living index.
Where Does Performance Fit into the Salary Structure?
If salaries continue to rise primarily with years of service, a particular problem can emerge, experience is rewarded, but excellence is not always rewarded. One employee may perform exceptionally well while another may carry out only the minimum responsibilities. If both receive financial benefits at almost the same pace, incentives for performance may weaken.
At the same time, a completely performance-based pay system could also create risks within Bangladesh’s public administration. It could raise questions about political influence, favouritism and transparency in performance assessments.
What is needed, therefore, is a balanced model in which basic pay is based on position and responsibility, increments are based on experience, and additional incentives are based on transparent and measurable performance. In other words, the salary structure should be designed in a way that gives economic value to all three elements: skill, integrity and results.
A possible model for Bangladesh could include:
• Annual Cost of Living Adjustment: A limited annual automatic adjustment based on the Consumer Price Index published by the Bangladesh Bureau of Statistics.
• Three-to-Five-Year Comprehensive Review: A full pay commission every three to five years.
• Location Allowance: Consideration of differences in the cost of living across regions.
• Pension Indexation: Adjustment of pensions in line with inflation to protect the purchasing power of retirees.
• Total Compensation Disclosure: Publication of total government compensation, rather than only basic pay.
• Wage Bill Rule: Setting a medium-term limit on government wage expenditure in line with revenue and GDP.
• Public Private Wage Benchmark: Regular comparison of compensation between the public and private sectors for specific professions.
• Productivity Component: Limited performance incentives based on skills and results.
• Gender Responsive Benefits: Supportive benefits that consider the actual costs of working life for women employees.
• Real Wage Reporting: Annual publication of inflation adjusted real salaries for government employees, alongside nominal salaries.
The biggest reform is not really about the pay commission, but about the system itself. In Bangladesh, we often view a new pay scale as a major financial event. But in a modern state, a pay scale is not a onetime announcement. It is an economic institution. A government employee’s salary is not simply an individual’s income. It is connected to household consumption, savings, housing, education, healthcare, the labour market, inflation, revenue and public expenditure.
Therefore, a sound pay scale needs three key characteristics.
First, fairness, meaning reasonable compensation for the same level of responsibility. Second, protection of purchasing power, so that inflation does not steadily erode real income over the years. Third, financial sustainability, so that the state does not make commitments that future revenues cannot support.
Modernising the salary system is more important than simply increasing salaries. The ninth national pay scale could provide significant financial relief for government employees. But treating it as a final solution would be a mistake. A salary that appears substantial today can lose much of its value again as inflation rises over the years.
