A fiscal blank cheque: The hidden cost of the 9th National Pay Commission

Let us be clear from the start: public servants are entitled to receive a fair salary. The last pay revision came in 2015; inflation has been brutal since, and a correction is certainly overdue. That is not the issue. The real issue lies in the engineering of this revision: the timing, the actors involved, and what this reveals about the distribution of power in a country supposedly preparing for democratic renewal.

The 9th Pay Commission recommends increasing the minimum basic salary from Tk8,250 to Tk20,000 and the maximum from Tk78,000 to over Tk160,000. This represents a staggering increase of 100% to 142%. Furthermore, full implementation of these recommendations will require an additional Tk70,000–80,000 crore per annum.

To put this in perspective, the National Board of Revenue (NBR) collected Tk3.7 trillion during the last fiscal year – missing its collection target by Tk93,000 crore. The proposed hike alone is nearly equivalent to that entire revenue shortfall.

The tax-to-GDP ratio in Bangladesh remains one of the lowest in the world, hovering at 6.5%. Every macroeconomist knows the basic fiscal identity: you can spend more only if you (i) tax more, (ii) cut spending elsewhere, or (iii) borrow more. Where is the financing plan for this massive outlay? There is none.

The inflation channel

Headline inflation stood at 8.49% in December 2025, the highest in South Asia. The IMF projects it will remain near 8.7% through 2026. If we now inject Tk70,000–80,000 crore of additional purchasing power into an economy already struggling with sticky supply constraints, the result is not mysterious. Prices will adjust upward, eroding the nominal gains for public servants while imposing a de facto tax on everyone else.

After all, inflation is the most regressive tax. It is the most burdensome on those with fixed wages that do not keep pace with prices, and those who lack financial assets to hedge against it – the rickshaw-puller, the garment worker, the small farmer. They will ultimately pay for this pay hike. Did anyone ask them?

The question of timing

Interestingly, this dramatic increase is proposed approximately 20 days prior to the national general election scheduled for 12 February, 2026. An interim government typically has no authority to commit future administrations to a trillion-taka liability without consulting them, obtaining their consent, or assuming responsibility for the costs.

It is clear that the current administration is attempting to "load" the next government with a politically attractive but fiscally heavy spending programme. Political scientists refer to this practice as the "political budget cycle". However, the interim government is not seeking re-election. Rather, it is a technocratic transition government. Thus, the question shifts: cui bono? Who benefits?

The principal-agent problem

Now we get to the uncomfortable reality. This appears to be a strategy for locking in income for certain segments of the bureaucracy. There is an anticipation that the next elected administration may clamp down on the "extra" – the informal income streams that thrive where bureaucratic discretion is high. Therefore, some public officials may be pushing to formalise large increases in their salaries now. The logic is simple: protect the total take-home pay today so that regardless of what happens to informal rents or corruption crackdowns in the future, their financial baseline is secured.

This is a classic principal-agent failure: citizens (principals) are asked to pay higher taxes or accept higher national debt so that agents (public officials) can be "incentivised". However, the incentive only works if the state simultaneously raises the probability of detection and punishment for corruption. If enforcement remains weak, higher pay simply becomes a transfer of wealth, not a governance upgrade.

Macroeconomics does not forgive unfunded promises. In a high-inflation, low-revenue, debt-stressed environment, a massive wage-bill increase without a financing plan is not compassion; it is risk transfer. The cost will be socialised across 170 million people through higher prices, reduced public investment, or mounting debt. The benefit will accrue to 24 lakh public employees who, not coincidentally, wield disproportionate influence over state decisions.

If this is remembered as reform, history will have been rewritten by those who gained from it. To everyone else, it will look exactly like what it is: a last-minute scramble to lock in rents before the political winds shift.

Mohammad Rezoanul Hoque is a PhD candidate in Financial Economics at the Department of Finance, Henry Bernstein College of Business Administration, New Orleans, LA, USA.

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