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Digital Public Infrastructure, Platforms and Public Finance

Written by Cathal Long

A new Co-Develop report from the Rockefeller Foundation, the Digital Public Goods Alliance, and the Norwegian Agency for Development Cooperation makes a compelling case for greater international cooperation and investment in Digital Public Infrastructure (DPI).

This instalment of Budgets and Bytes considers the report’s proposals around platforms for “data exchange” from a public finance perspective. While the Co-Develop report cites integrated financial management information systems (IFMIS) as an example of a data exchange platform, there are reasons to be sceptical about their ability to live up to this billing. The IFMIS, as we know it currently, does not appear to share many of the design principles associated with government platforms. Until it does, it may not be the best focal point for further investments.

Digital Public Infrastructure and platforms

“DPI refers to digital solutions that enable basic functions essential for public and private service delivery, i.e. collaboration, commerce, and governance. Think about our existing shared public infrastructure such as roads and education, but online: that’s DPI in a nutshell.”

This description of DPI (from the authors of the Co-Develop report) has its roots in the concept of Government as a Platform (GaaP), first coined by Tim O’Reilly, and later adopted and adapted by different governments.

As in the private sector, governments use the term “platform” to describe many different things. One of the more straightforward definitions is that “good platforms tend to do one thing well”.

“Platforms solve problems once, meeting the common needs of users, rather than addressing the same problem multiple times, and in slightly different ways. Those users might be elsewhere in government, in a different tier of government or outside government altogether (for example, a private company or charity).”

A good example is GOV.UK Notify, which allows central government departments, local authorities and the National Health Service to send emails, texts and letters to their users. It is also an example of a platform that has exported abroad to countries including Australia, Canada and Brazil.

The Co-Develop report makes the case that three categories of platforms – identity, payments, and data exchange – should be considered Digital Public Infrastructure, and be the focus of greater international investment and cooperation, because they are “critical almost everywhere”.

Platforms and public finance

The relevance of digital identity and digital payment platforms for public finance is no longer revolutionary thinking. They are now part of everyday life for billions of people in India where these platforms (Aadhaar for identity, and UPI for payments) come together with other platforms in the India Stack allowing both the government and the private sector to provide a broad range of services.

Moreover, as flagged in the Co-Develop report, there are now digital public goods for both identity (MOSIP) and payments (Mojaloop). These are open-source software and open standards which serve as blueprints for governments to build their own platforms.

Data exchange on the other hand, has long been the holy grail of public finance. Joining up technologies for public financial management (PFM) with each other, as well as with other government information systems, holds a lot of potential to change how governments do things, and what they do, for the better. Examples include enabling:

  1. The production of high-quality information to assess the past, current and expected impact of fiscal policies;
  2. Processes and procedures aimed at assisting decision makers to weigh up alternative options in the use of public funds as well as explicitly taking into account the potential economic and redistributive implications of those choices;
  3. Financial and non-financial resources to be delivered on a timely and predictable basis to ensure goods and services are efficiently and effectively supplied.

In practice, interoperability (as data exchange is often referred to) is hard to achieve, due to the tendency of governments to work in silos.

Furthermore, one of the examples of a silo-busting data exchange platform cited in the Co-Develop report – the integrated financial management information system (IFMIS) – often struggles to live up to this billing. Particularly in lower income countries, where there have already been substantial investments to date.

The IFMIS as a platform for data exchange

In a recent essay Richard Pope provides a “list of things that those backing digital public goods as infrastructure should think about when identifying good platforms”.

  • Simplicity – does it do one thing and do it well?

In contrast to examples of government platforms, an IFMIS does many things. In general, they are designed for financial control and financial reporting purposes.

"FMIS can be broadly defined as a set of automation solutions that enable governments to plan, execute and monitor the budget, by assisting in the prioritization, execution, and reporting of expenditures, as well as the custodianship and reporting of revenues…. Whenever FMIS and other PFM information systems (for example, payroll) share the same central database to record and report all daily financial transactions, offering reliable consolidated results for decision support, performance monitoring and web publishing, they can be referred to as an ‘integrated’ FMIS (or IFMIS)."

Moreover, they are often described as monoliths. While data exchange between their various modules is a feature of how they work, it’s not clear if their architecture is sufficiently open to allow for the kind of frictionless data exchange associated with modern platforms that are built on registers, shared APIs, and microservices.

  • Clear scope – It should be clear where something fits in the overall ‘civic stack’ and if it is designed for use by a single public institution, or by wider society.

In theory coverage of public sector organisations should be as broad as possible. In practice coverage is constrained by a variety of factors ranging from technical issues like internet connectivity to practical issues like licensing costs and human capacity.

Some cover just central government, while other countries have rolled out IFMIS modules to subnational governments. In some instances, more powerful institutions evade the rigours of expenditure control leading to payments outside the IFMIS. Lack of coverage can limit the usefulness of the data that an IFMIS generates, unless there are ways of bringing together the data that is outside the scope of the IFMIS.

Moreover, the absence of open architecture discussed above makes it difficult to identify the relationship between an IFMIS and other platforms in the civic stack.

  • Ongoing development – does it have a dedicated team and funding in place to continuously improve it?

Lack of funding, particularly for in-house teams/capabilities, is repeatedly cited as a reason for the IFMIS being poorly maintained and used in lower income countries. See for example Diamond and Khemani (2005), Dener, Watkins and Dorotinsky (2011), and Hashim and Piatti (2018) which illustrates the persistence of this issue over time. And Pimenta and Seco (2019) have documented how IFMIS in Latin America have fallen into obsolescence over time due to lack of funding and human resources.

  • Ease of use – can it be used ‘as is’ or does it require customisation? Does it have well designed documentation and open-source code libraries (in addition to the core piece of software)?

Countries frequently opt for commercial off the shelf (COTS) solutions, which are usually not open source. However, locally developed software (LDSW) solutions are also frequently not well documented (see Pimenta and Seco, 2019).

Many countries also customise their COTS solution to reflect their own PFM processes and standards. These customisations can also complicate post implementation maintenance contracts with the COTS vendor, making ongoing development to meet emerging user needs (such as data exchange) more complicated.

  • Solves a common need – is it meeting a genuine need for multiple use cases, and is there evidence for it?

Uña, Allen and Botton (2019) note that “when an FMIS is not in place, each line ministry and agency typically utilizes its own information system, resulting in loss of control and coordination by the ministry of finance, and unreliable financial reports”.

Nevertheless, this is how some governments (including the United Kingdom and United States) operate. Consolidated financial reporting is achieved through common standards and tools rather than a common IFMIS.

HM Treasury (HMT) uses a tool called OSCAR, to collect financial datasets from approximately 8,000 public sector organisations to produce the Public Expenditure Statistical Analyses (PESA), the Whole of Government Accounts (WGA), and other financial reports. HMT is less concerned about automating financial controls through an IFMIS, because of the strength of ministerial accountability to parliament (Pempal, 2013). But not too many countries have this luxury. So financial controls remain a key motivator for choosing an IFMIS solution, even if they do not work as expected subsequently.

Also, the transition to consolidated financial reporting in the UK took a long time (8 years), and even at the end of this period problems remained due to “many different systems in operation that cannot properly communicate” and the lack of a uniform chart of accounts (Pempal, 2013). Many countries try to tackle these coordination problems using an IFMIS.

In the US, the Office of Management and Budget (OMB) has previously told agencies to stop building costly agency specific systems and use a federal shared-services provider instead. Indeed, different country presentations often highlight cost reduction as another key motivator in their decision to implement an IFMIS. But despite the mandate from the OMB, the Bureau of the Fiscal Service is still trying “to reach the right level of standardization vs. flexibility”, which highlights the difficulties of meeting a genuine need for multiple use cases.

This trade-off may be more pronounced when it comes to platforms for public financial management than in other areas of public administration, due to the complexities involved. Modern platform approaches to designing technology may offer a greater chance of balancing the trade-off.

  • Governance model – does it have a decision-making process that represents the interests of all users not just a single organisation?

While it is common to find user committees and similar structures with mandates to identify problems and emerging needs, most IFMIS serve the interests of the finance ministry. Taking a platform approach requires a more relentless approach to putting the needs of users first.

“I think that one of the key areas of distinction in this approach moving forward, that we think will really be beneficial, is much more of a focus on the customer and the customer experience.”

This mindset tends to be associated with agile approaches, whereas IFMIS implementations often feature contrasting waterfall approaches.

Greater understanding is needed to justify the investment

While an IFMIS may not conform to what many ‘technologists’ think of as a government platform, this does not negate the desirability for a public financial management platform for data exchange identified in the Co-Develop report. Indeed, the World Bank has said that data exchange between core government systems is not sufficiently automated using APIs, and there should be a focus on improving interoperability through shared government platforms.

Researchers at both the IMF and the IADB have made recommendations on how the design of IFMIS could take a more platform approach. And we are already seeing examples of the benefits of shared platforms in both Estonia and Portugal around public procurement. While in India the eGov Foundation is currently building a fiscal information exchange platform (iFIX) “that will facilitate the exchange of fiscal information across central, state and local governments and also between various departments in a standardized manner”.

Greater understanding is needed to determine how these approaches fit together, and how they could benefit lower income countries. We have already seen billions invested in IFMIS with mixed returns and should therefore be more cautious about future investments.

These are some of the issues we will be looking at it in future instalments of Budgets and Bytes. Stay tuned by signing up below.