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Digital public finance: top trends in June 2023

Written by Nicholas Gates, Cathal Long

Image credit:Kinshasa, Democratic Republic of the Congo (MONUSCO Photos / Flickr)

Welcome back to the Budgets and Bytes blog, where it is time for another monthly review of the top trends in public finance and digital.

June got off to a bad start for digital payments advocates following the discovery of fraud in a Give Directly cash transfer programme in the Democratic Republic of the Congo. Otherwise, we observed some lively discussions and debates around several themes of interest, including: reforming public procurement; interoperability; central bank digital currencies and blockchain technologies; and tensions between centralised and decentralised approaches to controlling personal data.

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

1. A blow for the digital payments movement

In early June, Give Directly announced that it had suspended a programme in the Democratic Republic of the Congo after it was discovered that beneficiaries and funders had been defrauded by staff. This was a blow for advocates of digital payment programmes, particularly those who hope that these kinds of development finance-funded initiatives can provide examples for future government-funded social assistance.

The Give Directly case highlights that it is difficult for charitable organisations to scale cash transfer programmes to hard-to-reach populations. Ironically, the NGO broke from its standard procedures to protect people affected by conflict, which opened a loophole for the staff who took advantage. That said, this should be treated as a learning opportunity, while Give Directly should be commended for its transparency as it allows others to learn from this unfortunate incident.

2. Changing the culture around public procurement

Early in June, Jennifer Pahlka was on the Ezra Klein podcast to talk about her new book,Recoding America’. Their discussion provides a range of insights on the dysfunction between policy and delivery.

Unsurprisingly, procurement comes up throughout the conversation as a bottleneck to getting things done in government. For example, while US legislation often provides for a more agile, iterative and flexible approach to contracting software vendors, Pahlka notes that these provisions are rarely used well due to a culture of compliance, incentivising the use of contractors whose main competency is winning contracts.

Procurement is a big issue for digital transformation, with many governments trying to reform their public procurement systems for the digital era. In June alone, we saw Ireland and the UK announce reform plans; reflections on how current procurement models hold back digital transformation in Australia; and examples of procurement innovation from Ukraine.

Echoing Pahlka’s calls for changing the incentives civil servants face, New America is also advocating a shift in the culture around public procurement. Meanwhile, this Medium blog by Dr. Emrys Schoemaker argues in favour of updating procurement regulations as part of the wider effort in getting governance right for digital transformation. Both pieces mirror themes from Pahlka’s book and demonstrate the complexities of how digital transformation is funded and procured, which has huge implications for public expenditure.

3. Updating our thinking on interoperability

The discussion between Palkha and Klein also touched on a theme that has become increasingly topical in digital public financial management: interoperability (or data exchange). A government (or enterprise) service bus has become a standing recommendation for how governments should ensure different IT systems exchange data with each other. Indeed, the World Bank’s GovTech Maturity Index includes having a government service bus as an indicator.

Palkha is dismissive of the concept, describing the enterprise service bus as a relic of late 20th century thinking on data exchange which has since been replaced by open standardised APIs. We will revisit this topic in the first of our new BudgetBytes webinar series – Can Standards for Fiscal Data Exchange Support Better Service Delivery? – on 25 July. Registration is now open, so please sign up to hear more from our partners at the eGov Foundation about how their iFIX solution operationalises their concept of ‘standardised fiscal events’.

4. Centralising central bank digital currencies (CBDCs)

Interoperability was also cited as one of the reasons behind a new initiative at the IMF to create a global CBDC platform. With so many countries now developing their own CBDC, Managing Director Kristalina Georgieva stated that ‘CBDCs should not be fragmented national propositions... To have more efficient and fairer transactions we need systems that connect countries: we need interoperability’. As well as promoting financial inclusion and lowering the cost of remittances, the IMF is concerned that without a harmonised approach to CBDCs the vacuum will be filled by cryptocurrencies that create risks for financial stability.

While there are clear risks associated with cryptocurrencies being treated like money, their underlying blockchain technology continues to attract a lot of attention in public finance circles. Is blockchain a hammer looking for a nail? This new report from CIPFA finds that it ‘can potentially benefit collaboration between different stakeholders in the public sector, particularly in areas such as procurement, public financial management and outcome-based contracting’. We should remain wary, however. As with CBDCs, there are different ways of doing these things, many of which may be more suitable.

5. Decentralising control of personal data

In contrast to the centralised approach to CBDC regulation being pursued by the IMF, Demos released a report this month calling for a more decentralised approach to how personal data is used by both government and commercial providers of digital services. The report calls for ‘technical, regulatory, and institutional interventions [to] reimagine the foundations of a modern internet built on privacy, interoperability, and consent’. This follows similar calls from Curity (for self-sovereign identity) and the Tony Blair Institute for Global Change (for secure digital wallets and verifiable credentials based on people’s smartphone devices).

Making the internet easier, safer and better to use is surely a good thing. But not everyone agrees that this is the right approach to doing it. Digital government researcher Keegan McBride argued on Twitter that the proposed approach will struggle to scale to different countries. This would surely be a concern for those already worried about the digital divide both between and within countries, and may be another case where there are better alternatives in different contexts.

A big thanks to our partners

Finally, we want to wrap up this month's round-up by thanking some of our partners.

This month, we presented our research on digital PFM and the challenges to making public finance digital at Public Finance Live. Many thanks to the international team at the Chartered Institute of Public Finance and Accountancy (CIPFA) for inviting us to join the panel discussion on ‘Capacity development in perpetual volatility’ with Jana Repansek and Dr. Joyce Christina Dharmaraj. It was great to work with the Centre for Excellence in Finance (CEF) team again after attending the ‘Advancing digital change though public financial management’ conference we attended with CIPFA and CEF last month, and to learn more about what is happening in this space in the Western Balkans region. You can find our write-up of the conference here.

We are also happy to announce that ODI endorsed the DPG Charter this month. A big thanks to our friends at Digital Impact Alliance (DIAL) and the Digital Public Goods Alliance (DPGA) for helping to make this happen. We look forward to engaging further with this important agenda.