With an IMF delegation due to visit this week, it is important for the government to review the country’s macroeconomic stability as the exchequer prepares to foot a near doubling of the pay scale for state employees.
This pay increase will see the proportion of the national budget taken by salaries rising from 17.7% last year to over 20.1%. Finance Ministry officials have expressed concerns that this increase, combined with weak performance in first quarter tax collection, may leave the government with no choice but to take loans to foot the pay increase.
We have no objection in principle to the goal of raising pay for public employees. However, in practice, it is vital to remember that proper budgetary management requires current salaries to be paid for by current tax revenues. If salaries are now being raised to the point where this is no longer possible, this is a strong indication that the government needs to trim expenditure.
Paying for current expenses like salaries with borrowing is evidence of short-term mismanagement which has to be controlled if we are to avoid going down the path of the long term bankruptcy which has afflicted Greece.
There is nothing wrong with taking loans to pay for important development work which will improve the economy’s competitiveness and productivity. Bangladesh needs investment in infrastructure, and can benefit from loans which yield economic and financial returns, by allowing the nation to build new energy generation capacity, bridges, ports and transport links.
Hence, while we believe some increases in public borrowing are justified, this does not absolve the government of its duty to take a more rational approach to managing its resources.
Salaries of government officers and employees should not be financed by taking on new debt. New salary increases should be paid for by closing loss-making state owned enterprises and reducing costly and environmentally illogical subsidies on electricity and fossil fuels.
Prudent budgetary management that focuses government borrowing on productive long term investment, not immediate expenses, is essential to build confidence in the economy and support the sustainable growth in tax revenues needed to pay for future salary increases.
Cutting wasteful subsidies, and divesting chronically loss-making state enterprises, and bringing in new taxes on fossil fuel emissions would all go a long way to freeing up resources and reducing pressure on tax-payers.
Source: Dhaka Tribune
