Economists are warning that a series of expenditure-heavy decisions made by the interim government of Bangladesh in the final months of its tenure could leave a significant fiscal burden for the next elected administration, expected to assume office after the 12 February national election. While the interim government succeeded in slashing development spending to curb wasteful outlays, recurrent expenditure continued to rise, creating a looming financial challenge for the incoming administration.
According to experts, decisions including proposed pay hikes for government employees, expanded allowances, wider social safety-net coverage, and electricity rebates for the fisheries sector, as well as repayments to clients of liquidated financial institutions, could collectively place enormous strain on the country’s fragile fiscal balance. “Resource mobilisation and expenditure management will face massive pressure if the newly announced expenditure initiatives are implemented in full,” said Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD). “Revenue collection has again fallen short, while operating expenditure continues to increase at a time when it ideally should have been restrained. The scope for financing additional spending is extremely limited.” Operating Expenditure Outpaces Development Spending: During its tenure, the interim government aggressively curtailed development expenditure, particularly populist projects that were seen as wasteful, in a bid to reduce inherited fiscal strain. However, economists point out that operating expenditure-salaries, allowances, social welfare programmes, and debt servicing-has continued to rise.
“No agency provides loans to pay salaries,” Khatun added. “Government borrowing from banks has already risen sharply, and further borrowing would crowd out private-sector credit. The options for meeting these extra expenditures are therefore very limited.”
Estimates suggest that implementing the new pay structure proposed by the Pay Commission for government employees could alone cost around Tk1.06 lakh crore. Extending this scale to armed forces, autonomous bodies, and MPO-listed teachers would increase the total expenditure even further. On 27 January, Muhammad Fouzul Kabir Khan, Power and Energy Adviser, clarified that the interim government would not implement the Pay Commission recommendations, leaving the final decision to the next administration.
Limited Fiscal Space: Zahid Hussain, former lead economist at the World Bank’s Dhaka office, warned that raising sufficient revenue to finance these commitments would be extremely difficult. “These expenditures cannot be financed by borrowing or printing money, as that would fuel inflation,” he said. “That leaves only two options: earning more revenue or cutting other spending. But savings of this magnitude are unlikely to come from other public expenditures. Revenue mobilisation remains the only option, and that is far harder than announcing a new pay scale.”
Bangladesh’s tax-to-GDP ratio currently stands at around 7%, among the lowest globally, leaving the government with limited fiscal space. Debt-servicing costs are projected to rise further in coming years, reducing the capacity to fund development projects and social welfare initiatives.
Social Safety-Net Expansion: Alongside pay-related pressures, the interim government expanded several social safety-net programmes, increasing both beneficiary numbers and allowance amounts for old-age pensions, widow and disability allowances, education stipends, and healthcare support. An additional five lakh families were added to the food-friendly programme, allowances for freedom fighters were increased, and a 20% electricity rebate for marginal fish, livestock, and poultry farmers was introduced, requiring a fund of approximately Tk100 crore.
While economists acknowledge the social importance of these measures, they warn that these expansions will significantly add to recurrent expenditure, constraining resources available for other priorities. “Such measures are usually taken during budget formulation by an elected government,” Khatun said. “The interim government should have limited itself to recommendations rather than creating invisible fiscal pressure for the next administration.”
Weak Development Spending: Development spending, meanwhile, remains severely constrained. In FY2024-25, implementation of the Annual Development Programme (ADP) reached only 67.85% of the allocation-the lowest rate in one and a half decades. In the current fiscal year, only 17% of the ADP allocation was spent in the first half, the lowest on record.
Wahiduddin Mahmud, Planning Adviser, stressed the gravity of the situation: “No development strategy can succeed with revenue collection stuck at 7-8% of GDP. The revised development budget for the current fiscal year is being financed through loans. There are no global examples of countries achieving sustainable development by relying on debt to fund education, health, and social security.”
Economists warn that the next government will face strong pressure to boost development expenditure to revive growth, employment, and private investment, even as almost all revenue income is absorbed by operating expenses.
Questioning the Pay Hike Justification: The Pay Commission’s proposed salary increases are partly justified as a measure to curb corruption and improve service delivery. However, Iftekharuzzaman, Executive Director of Transparency International Bangladesh (TIB), rejected this claim. “There is no evidence that corruption declined or service quality improved after the 2015 pay hike. Without strong accountability mechanisms, higher salaries alone do not reduce corruption. Illegal transactions often rise faster than pay,” he said.
Zahid Hussain echoed these concerns, noting that self-financing salary hikes based on reduced corruption have little precedent in Bangladesh. “From a fiscal perspective, implementing such recommendations without structural reforms in revenue mobilisation and accountability is nearly impossible,” he said.
Urgency of Revenue Reforms: Taken together, economists warn that the interim government’s end-of-term spending decisions have significantly narrowed the fiscal room available to the next administration. Revenue mobilisation reforms, stronger expenditure prioritisation, and cautious management of recurrent commitments will be essential to avoid deeper strain on public finances.
“Introducing a new salary scale without substantial revenue increase will severely constrain development spending,” experts caution. “This could undermine efforts to boost investment, growth, and employment, leaving the next government to tackle both immediate social commitments and longer-term macroeconomic stability.”
