Salary hike, interest to eat into budget

A major portion of the non-development budget will be used to pay the increased salaries of government employees, and interest on loans.

A World Bank economist said the hike in the combined revenue budget share of pay and allowances and interest expenditures has shrunk fiscal space.

"This will reduce the flexibility in fiscal policy to adjust to unanticipated shocks to expenditures arising from natural and other disasters this year and in the immediate future," said Zahid Hussain, lead economist at the lender's Dhaka office.

The non-development budget has been raised by Tk 33,218 crore to Tk 196,513 crore for the next fiscal year.

Around 72 percent of the Tk 33,218-crore amount will be spent on salaries and allowances (Tk 15,803 crore), pension schemes (Tk 2,977 crore), and interest payments (Tk 5,244 crore).

"It also means that in the absence of achieving the very ambitious revenue target, the revenue surplus, which is usually a significant source of resources for the annual development programme, may shrink," Hussain said.

The government will need to be careful in releasing funds from provisions made for non-development capital expenditures and for programmes financed from non-development budget to minimise cuts in sectors critical for growth and development, he added.

The government plans to implement the new pay scale in phases -- the hike in basic salary will come into effect from next month, while the enhanced allowances will be paid from July next year.

In the upcoming fiscal year, around 15.3 percent of the total budget will be spent on salaries and allowances, which was 12.2 percent this year.

A policy statement of the government says, when the current pay scale had come into effect in 2010-11, when around 16.8 percent of the total budget was spent on salaries and allowances, some upward pressures were felt, but the effects eased over time.

The amount to be spent on salaries and allowances next fiscal year has been estimated at Tk 45,153 crore, which is a 54 percent hike from the amount this year.

Also, the allocation for pensioners' allowances rose around 34 percent year-on-year to Tk 11,584 crore.

The number of government employees now enjoying pension is about five lakh.

For paying interest on both domestic and foreign loans, the government got an allocation of Tk 35,109 crore, which is 18 percent higher than the revised allocation of the current year. Of the amount, interest on savings instruments went up 47 percent to Tk 14,421 crore.

The policy statement says, as the amount of low-cost foreign loans has been falling since fiscal 2010-11, expenditure on interest payments has been on the rise.

It said the government will continue its attempts to get more low-cost foreign credit with the aim of reducing debt servicing costs. Most of the expenditure, 95 percent, on interest payment is for internal borrowing through various savings instruments that saw cuts in interest rates of late -- by up to 2 percentage points.