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Thursday, December 25, 2014, Poush 11, 1421, Robiul Awal 2, 1436 Hijr

Govt pay hike to stoke up inflation
Published : Thursday, 25 December, 2014,  Time : 12:00 AM,  View Count : 17

Mizanur Rahman
Economists have dismissed Finance Minister's theory that government employees' pay-hike will not have any effect on inflation. They fear that up to 100 per cent pay increase for government employees will cause widespread inflationary pressure.
They said the pay-hike decision will make the state employees happy, but the government will be unable to control inflation. And when the pay rise will be implemented it will surely affect the overall economy.
MM Akash, Professor of Economics of Dhaka University, said "An indirect effect of this decision of the government will be increase of inflation." In 2010-11 there was 11 per cent inflation. That has gone down to seven per cent," he said.
"But how much the inflation will rise will depend on how the government supplies fund for this salary increase. If the government borrows from banks or print notes to solve the pay-hike, it will definitely affect the economy."
It is learnt that the government has to spend Tk 35,000 crore every year as salary and allowances. When the new pay-scale will come in to effect, it will stand at Tk 61,000 crore which is 35 per cent of the budget.
Former Chairman of National Board of Revenue (NBR) Abdul Mazid said "To spend the huge amount of money the government will have to depend on bank loan. Otherwise, there will have to be more initiatives to increase revenue. But whatever the government does, there is no doubt about the fact that the inflation will increase."
Consumers also believe prices of essentials will increase immediately after or even before the government moves to hiker public servants' wages. The government-formed Pay Commission that proposed a 100 per cent pay-hike said it will take six months to make it effective. But the market is already behaving erratically over the news of the pay hike, with prices of many commodities edging up and pressure is being felt across the private sector.
Consumers Association of Bangladesh (CAB) President Golam Rahman, however, hopes the salary increase may not push prices up because "internal production and international market prices are stable."
But this sort of prophecy often does not work, as it has been seen many times in the past, analysts said.
The teachers of private educational institutions have already claimed increased salary and allowances. A new Judicial Pay Commission has been formed while the Private Sector including insurance companies are craving for separate Pay Commission.
Planning Minister AFM Mustafa Kamal said, "With the increase of pay of government employees inflation too will increase." To keep market situation tolerable he advised to increase pay in stages.
He said "Pay is increasing at the rate of 75 to 100 per cent. Even if 75 per cent increases and the entire amount come to the market there will be bad effect-inflation will increase."
It is learnt that there are 40 lakh workers in the Ready-Made Garments (RMG) sector alone. During the last five years there has been 299 per cent increase in the wages of the workers of this sector. In the meantime, the government employees have fallen in salary disparity.
Specialists think the government can increase salary of government employees. But there is a general practice in our country that whenever there is any big change in the governmental arrangement it has its effect in the private sector too. So, the government will have to have the power of controlling the market system strongly after the pay-hike. Otherwise like the good result that the government employees will enjoy because of the pay-hike 16 crore people including five crore workers will have to suffer and that will be unexpected. That can make the entire socio-economic condition unstable.
But Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) President Kazi Akramuddin Ahmed has differed. He said, "There cannot be any effect of 2.5 per cent government employees on the 97.5 per cent people of the private sector. If at all there is any effect that will be absolutely illogical and unjust. But the private sector has got the power to tackle that."
Akramuddin probably forgot how much the RMG sector had to struggle to raise workers' salary to a subsistence level of Tk.5000 after years of painstaking negotiations.
He said, "Government should be cautious so that with the increase of pay there is no instability in the market. However, he did not make a specific suggestion as to how the market control can be stepped up.
Regarding this, former FBCCI President AK Azad said, "Private sectors will have to be taken into consideration before taking any final decision (about pay hike for state employees)".
"Pay-scale should be made in such a way that it does not have any effect on the private sector because although there is attractive pay-scale in the private sector there are some anomalies there. Especially the workers of road transport, water transport and jute sector are not getting respectable salary. So, with the pay-hike of government employees there may be adverse effect in all the private sectors."

Editor : Iqbal Sobhan Chowdhury
Published by the Editor on behalf of the Observer Ltd. from Globe Printers, 24/A, New Eskaton Road, Ramna, Dhaka. Editorial, News and Commercial Offices : Aziz Bhaban (2nd floor), 93, Motijheel C/A, Dhaka-1000. Phone :9586651-58. Fax: 9586659-60, Advertisemnet: 9513663, E-mail: [email protected], [email protected], [email protected]