IMF to probe pay scale in new loan talks

Bangladesh’s plan to implement the Ninth National Pay Scale while meeting the conditions of a new International Monetary Fund (IMF) lending programme has emerged as one of the government’s most significant fiscal challenges.

As the government moves ahead with its pledge to raise public sector salaries, it is also facing weak revenue collection, persistently high inflation and growing pressure on the banking sector.

Against this backdrop, an IMF mission is scheduled to visit Dhaka from 12 to 16 July to assess the country’s fiscal position and discuss a proposed lending programme worth between $4.5 billion and US$5 billion.

According to Finance Ministry officials, the IMF delegation, led by Bangladesh Mission Chief Ivo Krznar, will hold two key meetings with the Finance Division on the opening day of the visit.

The first will focus on revenue policy, the national budget, the medium-term budget framework and domestic and external financing plans.

The second will centre on implementation of the Ninth Pay Scale, public sector salaries and allowances, and budget allocations for government employees during the current fiscal year.

Finance Minister Amir Khosru Mahmud Chowdhury announced in the national budget that the Ninth Pay Scale would take effect from July.

A senior Finance Division official said the government would present its medium-term fiscal framework, revenue mobilisation strategy, external debt management plans, social protection programmes and financing strategy for the new pay scale during the discussions. Officials hope the talks will pave the way for a new IMF lending arrangement.

The government has earmarked more than Tk440 billion under contingency expenditure in the current fiscal year to support the initial implementation of the revised pay structure.

However, full implementation, in line with the recommendations of the National Pay Commission, is expected to increase annual expenditure to more than Tk1.06 trillion.

The revised pay structure is expected to be introduced in phases over the next fiscal year.

Given these commitments, the IMF is expected to seek detailed explanations on how the government intends to finance the additional spending amid sluggish revenue growth, banking sector weaknesses, elevated inflation and slower economic growth.

Former World Bank Lead Economist in Dhaka Dr Zahid Hussain said Bangladesh’s greatest fiscal weakness remained its low tax-to-GDP ratio.
“Government expenditure continues to rise while tax collection remains weak.

Before implementing a large spending programme such as the new pay scale, the government must ensure sustainable financing. Otherwise, the budget deficit and inflationary pressures will increase,” he said.

The IMF has repeatedly expressed concern over Bangladesh’s failure to meet revenue collection targets set by the National Board of Revenue (NBR). At the same time, non-performing loans have continued to rise, private investment has slowed and inflation has remained elevated.

The Fund is also expected to review the government’s record allocation for the health sector and the proposed introduction of an e-health card programme, while seeking clarification on the macroeconomic implications of simultaneously increasing spending on social protection, healthcare and public sector wages.

Economists said the proposed programme extends beyond strengthening foreign exchange reserves and is likely to be linked to broader reforms covering revenue administration, banking sector restructuring, energy subsidy reforms and overall macroeconomic management.

Former Finance Secretary Mahbub Ahmed said higher public sector salaries had become necessary but stressed that wage increases must be supported by stronger revenue collection and improved productivity.

“The government needs to demonstrate a credible plan to finance higher expenditure through increased revenue. That is likely to be one of the IMF’s key concerns,” he said.

M Masrur Riaz, Chairman of Policy Exchange Bangladesh, said the IMF assessed not only a country’s financing needs but also its economic capacity.

“The Ninth Pay Scale is achievable, but only if it is accompanied by tax reforms, modernisation of revenue administration, improvements in banking sector governance and reductions in non-essential expenditure. Otherwise, fiscal pressures will intensify,” he said.

Following its decision to move away from the previous IMF programme negotiated under the ousted Awami League government, the BNP-led administration has formally requested a new financing package.

Officials said the IMF has responded positively to the request, with the upcoming mission expected to negotiate the programme’s structure, conditions and reform agenda, including banking sector restructuring, revenue reforms and measures to strengthen energy security.