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Digital public finance: top trends in April 2023

Expert comment

Written by Nicholas Gates, Cathal Long

Image credit:Marco Verch Professional Photographer / Flickr

Following the launch of the Digital Public Finance Hub, Budgets and Bytes will now feature a monthly review of the top trends in public finance and digital. Welcome to our first edition!

April was a big month for the twin ideas of digital public infrastructure (DPI) and digital public goods (DPGs). They even managed to permeate mainstream public finance discussions in Washington DC. However, we have picked up on competing visions for how DPI should be delivered – particularly around design and governance – while funding also remains an issue.

Without further ado, here are some of April’s top trends in digital and public finance.

1. DPI is having its moment, with a lot of attention on India

India assumed the G20 presidency in January 2023 and has been using this platform to share its DPI vision. In light of this, April saw a significant uptick in media coverage of the India Stack – India’s DPI for identity, payments and data exchange — including a huge write-up in the Financial Times.

A blog from Co-Develop, an investment fund for DPI, at the beginning of last month helped to advance understanding of the values that underpin good DPI and set a good tenor for the month’s attention on the topic. The blog made extensive note of how DPI needs to be inclusive, foundational, inter-operable and publicly accountable – all themes we saw emerging in the discourse around DPI this month.

India is also beginning to think about the export of its DPI for payments (the Unified Payments Interface (UPI)) abroad. This includes the announcement of an agreement with Singapore to link their real-time payments systems, which would have the benefit of lowering the cost of remittances (as we have covered previously, these remittances remain stubbornly high). That said, the effort is getting caught up in geopolitical headwinds, while some informed scepticism is also emerging (more on this below).

While India’s DPI advocacy through the G20 Presidency accelerated notably in April thanks to extensive media coverage, it was not new. This high-level advocacy is backed by, among others, the UN Development Programme (UNDP), and has proved to be highly influential in the last four months. In real time, this coordinated advocacy has meant that the move towards DPI has become unavoidable for funders. Holding these types of high-level events is recognition that – by default – the DPI model will have a huge impact on infrastructure financing in the years ahead, and that international financial institutions and lenders need to catch up.

2. This is starting to resonate in public finance circles

For readers who are relatively new to the concept of DPI, we have previously covered its relevance for public finance. Indeed, last month we observed that the idea of DPI was finally beginning to resonate in public finance circles, after considerable attention in other areas of international development over the last two years.

In particular, the annual World Bank/IMF Spring Meetings – normally a good barometer for trending topics in public finance – took place last month in Washington DC. This year’s meetings were notable for how much time they afforded to discussions on DPI in comparison to other topics. One key theme seemed to be whether or not the India model could be replicated elsewhere, with some additional focus on the role of DPI in building better connected and more inter-operable digital payments ecosystems both within and between countries.

The IMF laid the foundation for this India focus in the lead-up to the meetings with the release of a new paper on India’s digital journey, discussing how the India Stack has contributed to improvements in revenue collection, spending efficiency and financial inclusion. The IMF followed this up with a flagship event in which we heard directly from a range of stakeholders on the topic of DPI.

Some of the panellists for the IMF event included:

  • Nandan Nilekani (Co-founder and Chairman of Infosys): Discussing the foundational nature of DPI, Nilekani described DPI as ‘a very fundamental strategic way of thinking about the future of a country by leveraging technology for digital transformation and better and equitable growth’.

  • Melinda French Gates (Co-chair, Bill & Melinda Gates Foundation): Mirroring the inclusive focus of DPI, Gates acknowledged the macroeconomic benefits of DPI, but was quick to highlight its benefits in terms of gender equality and for driving financial inclusion.

  • Dan Schulman (President and CEO of PayPal): Reflecting on the idea of inter-operability, Schulman reflected on the importance of inter-operable digital payments systems for the global digital economy and the need for public-private cooperation.

While the IMF’s increasing interest in DPI is certainly a reaction to India’s push through its G20 Presidency and an increasing sense of inevitability, it is grounded in countries’ experiences with public spending over time. For most of the last 20 or more years of digital transformation, IT infrastructure for public spending was often driven by the private sector on the back of public sector outsourcing – a trend we noted in our recent paper on digital PFM.

The IMF panel was admittedly heavily skewed towards the example of India, which it had documented in its paper and which dominates the conversation around DPI. Nevertheless, what the India example shows us – and what the panel highlighted – is that rather than thinking about platforms for PFM, we should be thinking about how PFM as a system unto its own fits within a broader DPI ecosystem. This seems to be resonating with other countries, something the IMF increasingly recognises and is getting ahead of.

3. We are also seeing a big push around DPGs

In line with the conversations on DPI, April also saw continued prominent examples of international organisations and their supporters promoting the values of open-source DPGs as part of DPI.

Some focus was given at a Digital Public Goods Alliance (DPGA) and Organisation for Economic Co-operation and Development (OECD) roundtable to how DPGs can remain a part of the conversation and play a role for governments in building DPI. Additionally, the Digital Impact Alliance (DIAL) released a white paper on DPGs as part of DPI, UNDP released a new piece on how DPGs are being used by governments and data.org hosted its own webinar on DPGs, with some focus on their role in supporting financial inclusion.

Broadly speaking, the ambition of DPG advocates is to use DPGs – which are often confused with DPI – to make DPI more open and to encourage collaboration between countries, helping to make the use of ‘open solutions’ in DPI more agile and transparent. By way of example, Public Digital’s Ross Ferguson gave a great overview of some of the cross-government collaboration happening to build a community of practice around Notify, highlighting some of the discussions that are thinking about Notify as a platform-based service that could become a DPG.

That said, while the conversation around DPGs and DPI holds tremendous potential in PFM, the verdict is still out on how and in which cases DPGs and other open-source digital technologies make the most sense in a PFM context. Open-source alternatives to financial management information systems (FMIS) are not really a thing yet, and we still need to figure out which exemplars in PFM – e.g. taxation and revenue collection – might enable finance ministries to benefit from having foundational DPI in place.

Nevertheless, there are some examples emerging: iFIX, a platform for improving PFM health, is being promoted as an example of a DPG (something discussed at our conference); OpenFisca – an open-source standard for rules as code that might have implications for fiscal policy-making – was recently registered as a DPG; and the DPGA also recently admitted PolicyEngine – free, open-source tax benefit software that provides micro-simulations. While none of these meet the definition of DPI, there is hope that their application in PFM can be explored in the months and years ahead.

4. There is some emerging tension with regard to how DPI will be delivered, particularly around design and governance

Despite all the positive attention on DPI and DPGs, some real questions are emerging on how DPI will be delivered.

We alluded to it earlier in our discussion on the India Stack and UPI, but we find that debates are emerging in the media and in policy circles around digital sovereignty, the role of the private sector and the centralised approach India has taken to DPI (and is trying to export abroad).

  • Digital sovereignty: The DPGA/OECD roundtable mentioned above also discussed what the role of the private sector ought to be, as well as the potential implications of DPGs as tools for countries interested in promoting digital sovereignty through DPI. The digital sovereignty theme was echoed in a recent piece by Public Digital, where Andrew Greenway discussed how the tension over digital sovereignty is affecting our understanding of what is public and what is private.

  • The role of the private sector: At the IMF event, Queen Maxima of the Netherlands spoke to the need for DPI to be ‘truly inclusive’, which seemed targeted towards the private sector. While India’s DPI is publicly owned, the Indian Finance Minister Nirmala Sitharaman was quick to note the level of private sector involvement, emphasising the need for public-private cooperation around DPI. As highlighted by Co-Develop, public and private interests may not align, and Don Moynihan points to a case of this in relation to tax administration in the US.

  • India’s centralised approach: The blitz around DPI is not without scrutiny of the centralised approach offered by the Indian model, which takes place in a context where India does not have a data protection law in place but advocates for centralised data collection globally. The same Financial Times article mentioned earlier went into some depth on the data protection and privacy concerns of the Indian model, and Rest of World published a detailed report on India’s plan to export UPI that considered some of the potential ramifications of an Indian-led DPI approach to payments when exported abroad.

All of this points to the fact that while most generally agree on the need for more foundational and inter-operable approaches to digital infrastructure that focus on whole-of-society capabilities, there are coded differences of opinion on how inclusive and publicly accountable DPI ought to be. In particular, there are outstanding questions on how DPI ought to be designed and governed in a way that maximises inclusion and public accountability (key themes of the Co-Develop blog), and the extent to which each of those things ought to be done in a more open, agile and transparent manner.

5. How to fund this kind of digital transformation is a work in progress

Finally, April prompted a lot of public discussion on alternative approaches to thinking about what public spending on digital looks like. For example, Andrew Greenway and Kate Tarling wrote in Civil Service World about the challenges in the ‘government spending game’. Their article helps us to understand the organisational incentives that go into funding technology infrastructure like DPI.

Alternative funding models might have implications for how the DPI of the near future is funded. In Australia, we saw some movement around digital and data funding across the federal government, culminating in a proposal for a digital-specific ‘Digital Readiness Fund’ which would help reform the model for funding technology to better support agile delivery – a theme we see prominently in discussions around DPI.

Ultimately, however, we believe that countries will take different approaches to funding and financing DPI because of different conceptions of what DPI is and ought to be. Public finance is so cross-cutting that our understanding of good practices for funding DPI are likely to be highly context-dependent.

Not only that, the private sector continues to hold tremendous sway over treasuries and finance ministries in governments, which are often reluctant to embrace what they view as unproven solutions. Many of the delivery questions around DPI need to be ironed out before we can understand the relevance of specific funding models or financing approaches for DPI.