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16 March 2023

Digital public financial management: An emerging paradigm

Working paper

Written by Cathal Long, Marco Cangiano, Emily Middleton, James Stewart

Rodion Kutsaiev / Unsplash

Executive summary

While there is well-founded optimism surrounding a digital revolution in public finance, it is difficult to reconcile this enthusiasm with the current realities of public financial management (PFM).
Despite significant investments in IT for PFM, the prevailing paradigm has struggled to deliver successful digital transformation.
This prevailing paradigm is characterised by an unsuitable funding and delivery model, which contributes to a closed and siloed technology architecture. This is inseparable from a PFM system which is rigid and losing relevance.
To be more flexible and responsive to users’ needs (policy-makers, civil servants and citizens), PFM should embrace the new paradigm for digital government, its key principles – single source or truth, re-use and user-centricity – and ways of working.
This emerging paradigm for digital PFM recognises PFM and digital as means to an end, and PFM processes (and the digital solutions that underpin them) as requiring ongoing iterative redesign to remain flexible and responsive to users’ needs.
This implies shifting to a much more open technology architecture in which digital solutions for PFM are part of a wider ecosystem of shared digital infrastructure, data and services. And to make this possible, governments need to reform their funding and delivery models to be more outcome-focused and problem-driven.
Data is the foundation for digital government. Improving data governance is fundamental for realising a digital revolution in public finance. As a community of practice, PFM is both a provider and user of government data, and it should set standards for itself and what it expects from others.
Finance ministries have a key role to play, not just in making public finance digital, but in making government digital. A whole-of-government approach requires its central institutions to act as standard bearers and as regulators for digitalisation.
Lower-income countries have the most to benefit from this emerging digital PFM paradigm. Development partners need to adjust their funding models to be more supportive of emerging approaches to digitalisation.

Authors