Working with Cathal Long and Marco Cangiano at ODI, and Emily Middleton, Angie Kenny, and Joanne Esmyot at public digital I’ve been contributing to two papers laying out a new agenda for public financial management in the digital era.

An emerging paradigm

In the first paper in this series – entitled Digital public financial management: An emerging paradigm – we make the case that a paradigm shift is needed in how governments and development partners approach digital PFM. We outline an ‘emerging paradigm’ based on the latest thinking in PFM, digital change in government and digital technology.

Building on this emerging paradigm, this paper discusses how digital PFM as a discipline can help make public finance digital and, more broadly, usher in a new era of public finance reform in government. In this way, digital PFM brings together different specialisms from PFM, digital government and service delivery into a more holistic focus.

Challenges

In the second paper - entitled Making public finance digital: Challenges to the emerging digital public financial management paradigm we discuss six challenges to the emerging paradigm:

  • A bias towards commercial off-the-shelf (COTS) solutions, because digitalisation is equated to introducing a financial management information system (FMIS), and the market for FMIS is dominated by a small number of vendors. The focus on technology solutions also makes it harder to take a problem-driven approach.
  • An incomplete understanding of user needs and incentives, resulting from a lack of meaningful user research in most digital PFM initiatives. The needs of certain users are deprioritised, which in turn impedes digital transformation. Because most users are internal, there is not the same pressure to improve usability that exists for predominantly citizen-facing services.
  • An inherent aversion to iterative, incremental ways of working given the ritualised nature of PFM, institutionalised risk aversion and inflexible, hierarchical cultures.
  • Critical skills gaps in finance ministries, especially in digital specialisms such as product management and design. Digital specialists tend to be treated as inferior to economists and policy advisors, and truly multidisciplinary digital teams in finance ministries are vanishingly rare.
  • Outdated funding models for digital initiatives in both government and development partners reinforce the prevailing bias towards COTS, and ‘big-bang’ implementation. Finance ministries are in a unique position to help reform these models.
  • Legacy technology and sunk cost fallacy will pose a particular problem in the PFM field, given the extensive investment in FMIS and other PFM systems over the past 30 years.

The paper concludes that, although these six challenges are significant, they are not insurmountable. To be overcome, finance ministries will need to adapt their ways of working, and funders will need to adjust their expectations and funding models. Significant supply-side investment will be needed at the national and global levels to create a more vibrant, competitive ecosystem of technology firms and technical assistance partners working on digitalisation and PFM reform, to bring public finance into the digital era.

You can find both papers within the Digital Public Finance Hub an initiative I’ve helped established, working with ODI and funded by the Gates Foundation. They were introduced as part of our Budgets and Bytes event.