November saw the beginning of COP28. Against that backdrop we are looking at the recent announcement that India is developing digital public infrastructure (DPI) for climate change. The month also saw updates in the changing landscape of central bank digital currencies, and we reflect on Marc Robinson’s recent blog series on the benefits and limitations of digitalisation for measuring public sector performance.

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

1. A DPI approach to tackling climate change

Is there a DPI approach to tackling climate change? That was the question posed by Nandan Nilekani in a video promoting the launch of India’s latest DPI initiative. The initiative aims to standardise ‘climate data’ to support policy formulation and implementation in areas including green infrastructure, carbon credit trading and disaster response and recovery. The Digital Impact Alliance has also been exploring the potential benefits of DPI for action on climate change this month, as have others such as Co-Develop recently.

These kinds of ‘data exchange’ DPI initiatives are particularly relevant for the field of PFM, which has been attempting to go green, but seems to persistently end up back in the same place – simply tagging expenditures. In the case of India, enthusiasts argue there is a ‘persistent challenge: the misdirection of climate finance due to information asymmetry’ to be solved. Better data could allow governments to better prioritise and target spending for climate change mitigation and adaptation, and these policy formulation and implementation capabilities may be particularly relevant for countries attempting to meet the conditions for accessing new sources of international climate finance.

While foundational, society-wide infrastructure may form part of government responses to climate change, it remains to be seen whether India’s DPI will hit its ambitious targets. Many countries may have this data at their disposal but may not be using it effectively. The value of a climate change DPI approach, then, is less about the technology and more about data governance and using data more effectively for formulating and implementing climate policy.

2. The changing landscape of central bank digital currencies

As proxied by Atlantic Council data, there has been significant growth in development of CBDCs (e.g. the digital euro project) in 2023. As that data notes, some 130 countries are now exploring or developing CBDCs, representing 98% of global GDP. Likely as a result of this prevalence and their seeming inevitability, the IMF is making a forceful push for CBDCs, pressing governments to develop digital currencies while advocating for scrutiny in their design.

Why the growth in CBDC infrastructure, and what are the benefits for governments? We’ve talked a lot about the importance of making PFM part of a broader ecosystem of data, platforms and services. In this holistic view of PFM architecture, CBDCs could play a foundational role in enabling digital transactions and strengthen governments’ ability to leverage their own digital payments systems. That said, there remain concerns around cybersecurity and impacts on the privacy of personal data.

Ultimately, CBDCs are being explored as ways to help governments lower the transaction costs of delivering services and benefits. In part, this may also be a response to rising concerns around cryptocurrency and the management of the financial system. It’s still unclear how important CBDCs will be in public finance, but the latest data suggests they will play an increasing role in the future of payments.

3. Digitalisation and government performance measurement

Marc Robinson’s series of blogs in November focuses on improving our understanding of how digitalisation can strengthen and enhance performance measurement, given recent trends in measurement and analytics. In making this point, Robinson notes that the digitalisation of administrative data:

● has the main strength of providing output and intermediate service indicators of government performance; and

● has the potential to lead to better indicators of output quality where timeliness, standards and satisfaction can be measured; but

● is limited in what it can provide on outcome indicators (which is what we really should care about), and we should therefore be cautious about a purely ‘government analytics’ approach, which is more about monitoring and less about evaluation.

Performance measurement data is of course very relevant in public finance decision-making. There is a long-standing idea that ‘the budget system should spur reallocation from lesser to higher priorities and from less to more effective programs’. However, as we’ve highlighted elsewhere, governments often struggle to bring this kind of data on the effectiveness of different government programmes together in meaningful ways.

As Robinson notes, digitalisation can help a great deal with the problem of supplying better performance data for government decision-makers. But the demand side also needs to be tackled, including improving our understanding of how evidence-informed decision-making happens in practice, in different areas, and across different contexts. These are not inherently ‘digital’ problems – digital simply gives us a chance to shift the conversation.

News from our network

The Public Digital team behind the Hub were in Kigali last month, leading workshops on data governance i n the Rwanda Revenue Authority. The interactive workshops were well-received by participants from the RRA, who showed huge engagement and dedication in finding solutions for their data governance and management challenges. We remain keen to discuss next steps and collaborate going forward.

Thanks also to our friends at the eGov Foundation for having Cathal on their recent webinar, which discussed ‘Reimaging Public Finance Management’. You can watch the video on their YouTube channel. It was a great discussion of many areas related to PFM reforms and accountability in the era of digital platforms. The webinar also served as the launch of a Strategy Blueprint for streamlining and bringing efficiency and transparency throughout the PFM lifecycle.

Finally, we would like to thank our colleagues at CEF for organising a series of WeLearn events on Digital Transformation and its Interrelation with the Public Financial Management and Public Administration Reform, and inviting us to contribute and learn from participants working in government in the Western Balkans.