Pay hike may widen budget deficit, escalate inflation | 2014-12-22 | daily-sun.com

Pay hike may widen budget deficit, escalate inflation

    22nd December, 2014 01:19:17 printer

Pay hike may widen budget deficit, escalate inflation

Country’s noted economists fear that implementation of the proposed bulk hike in pay structure for civil servants could widen budget deficit and escalate inflationary spiral of price rises.
Early disclosure of the structure will have an initial impact on the commodity market that, they said, would ultimately strike all income segments, including low-paid private employees.
The experts said implementation of the wage structure remains a big challenge for the government as it cannot exploit full potential of tax revenues due to inappropriate measures.
On Sunday, Pay and Services Commission handed its report to Finance Minister AMA Muhith at the secretariat, recommending around a 100 percent hike in basic pay for civil servants.
As per the proposal, basic pay for secretaries has been recommended double from Tk 40,000 to Tk 80,000 and the lowest Tk 8,200 from Tk 4,100, excluding benefits like house rent and medical, risk, transport and insurance allowances.
The latest pay structure would be effective from July 1 next year.
“We keep allocation even in current budget. We have adequate resource in hand. So, implementing the new pay will not be difficult,” Muhith told reporters at a briefing after receiving the report.
He also defended journalists’ query on potential risk of inflation, saying: “There’s no possibility of inflation to go up.”
But economists, however, differed with the finance minister’s comments.
“Inflationary pressure is inevitable. In the past, we saw a sharp rise in inflation as an immediate impact of the pay rises,” AB Mirza Azizul Islam, former adviser of a caretaker government, told a private TV channel.
On the pay hike, former Bangladesh Bank governor Dr Salehuddin Ahmed said he sees lack of rationale in the proposed hike in civil servants’ salaries.
“I don’t think raising salaries is the only remedy to increase efficiency in civil servants. The government satisfies them,” he told daily sun.
The private sector may experience a pressure due to the hike as Salehuddin sees a huge difference in pay structure between public and private sectors.
He said public servants will be benefited by the pay hike. “The beneficiaries will only spend additional money at markets. It’s a yawning chasm.”
The economist said budget deficit may increase to cover up extra spending arose from the pay hike as tax potential is not properly exploited.
He said the government has to cover also the overall development in the country… sort of social safety coverage, education and infrastructure.
Dr Sadiq Ahmed, member of the central bank board of directors, said financing the bulk salaries might be a big challenge as the tax potential still remains untapped and there is no real improvement in resource constraints.
In GDP percentage terms, the proposed hike entails 1.3 percent rise in public spending to 3.4 percent on civil servants’ salaries, he said. “It is huge.”
“Obviously, there’ll be an impact of inflationary pressure. But the thing is how efficiently the government would manage the challenges,” Sadiq went on.
But the banker does not see the hike abnormal. “Rationale is how efficiently government reaps productivity and performance of civil servants. It should decide whether a huge force of employees without productivity is needed.”
Policy Research Institute executive director Dr Ahsan H Mansur said pay hike may not work to improve productivity or offer better service.
There should be provisions of hiring efficient people from the private sector to serve in key government positions like secretaries and heads of other agencies.
“In India, Pakistan and Sri Lanka, we’ve seen hires from private sector by the government to serve in key positions like secretary, chairman of planning commission and as heads of other agencies. They work as part of bureaucracy.”
The Pay and Services Commission should recommend it, he observed.

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