Govt pay hike may add pressure on inflation: Ashraf

A proposed increase in government employees’ salaries could add to inflationary pressures and strain the government’s fiscal position, potentially putting the private sector under a revolving pressure if it leads to a wider budget deficit, said former Dhaka Chamber of Commerce and Industry (DCCI) president Ashraf Ahmed.

While attending exclusively to The Daily Observer on Monday, DCCI-a leading chamber of commerce- chief said two major factors should be considered in assessing the potential impact of a government pay hike: Its possible effect on inflation and its implications for the government’s fiscal policy and revenue position.

“We can anticipate that there may be pressure on inflation,” he said. “At the same time, if there is increased pressure on the government’s fiscal policy and the deficit rises, the private sector could also come under pressure.”

However, he said he did not expect a government salary increase to create significant pressure on private-sector employers to raise wages.

According to Ashraf Ahmed, salaries in the private sector, particularly for white-collar employees, are already relatively high. Pay scales for such positions are generally much higher, so an increase in government salaries is unlikely to have a significant direct impact on private-sector wages.

“Private-sector salaries, particularly for white-collar jobs, are already much higher. The salary scales in those positions are also considerably higher. So I do not expect much pressure on the private sector as a result of the government salary increase,” he said.

He noted that the impact of higher government salaries should therefore be assessed primarily in terms of their potential to fuel inflation and affect the government’s fiscal position, rather than their likely impact on private-sector wages.

Ashraf Ahmed stressed that if the government’s revenue position comes under pressure and the budget deficit rises, the resulting fiscal pressures could also affect the private sector.