The New Nation - Internet Edition

THE caretaker government is reportedly planning to raise salaries of civil servants by some 20 per cent. The rationale is to give them cost of living support when prices are on the high side. But the important thing is, whether the civil servants will gain anything from this salary hike. The moment the higher salaries would be made available to them, the sellers of goods and services on the plea of their anticipated additional purchasing power, will indulge in wholesale increase in the prices of goods and services. Therefore, the financial gains from the 20 per cent pay hike could be more than nullified.

This has happened before and all the probabilities are that the same experience might be repeated. The civil servants form a fraction of the population. But the act of raising their salaries by 20 per cent will give a signal to the unholy traders to increase prices by a similar margin. For the vast number of people in the rest of the population who work in the private sector or are self-employed, there might not be pay rises. But they would have to bear the brunt of a fresh round of price escalations.

So, there is hardly any wisdom in this initiative. Even donor agencies such as the IMF has counselled against it saying that this would only stoke inflation when inflation remains at the highest ever recorded level in Bangladesh. Instead of going for such simplistic solution fraught with risks, managers of the economy need to go for much better control of inflation and its reduction as a way of giving everybody relief from its ravages. In a similar situation, developed countries usually apply policies of freezing salaries and wages whereas Bangladesh seems poised to do the opposite.