Digital Innovation in PFM : Opportunities and implications for low-income countries
Low-income countries often face substantial challenges when managing their public finances. Widespread corruption, tax evasion, and poor institutional accountability make it difficult for governments to increase their revenue and provide targeted services to citizens. While it is generally accepted that technology – from digital payment systems to geospatial data analytics – can strengthen the public financial management (PFM) in developing countries, most low-income governments are unaware of the full array of available digital tools in the market, and their potential benefits.
A new study by the Bill and Melinda Gates Foundation, together with AlphaBeta, sheds light on the exciting possibility of using digital technology to improve PFM in low-income countries. It contributes to existing research by identifying 60 technology applications that can assist low-income countries overcome their most pressing PFM issues, namely: 1) aligning budgets with policy priorities; 2) improving tax compliance; 3) allocating public spending and deliver services more effectively; 4) reducing corruption in public procurement and 5) enhancing institutional accountability.
Drawing on reform experiences in countries worldwide and interviews with industry experts, the report uses a “readiness framework” to assess how various low-income countries could make best use of five prominent PFM technologies: geographic information systems, e-procurement, big data analytics, digital payments and blockchain. The “readiness framework” helps officials outline a potential reform path, depending on their specific level of technological progress. The framework identifies three stages of technology adoption: pre-readiness, basic readiness and advanced readiness. The higher the level, the greater a country’s capacity to pursue more sophisticated forms of PFM technology.
To access a summary of key messages from this study, please click here.