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August 08, 2017

Digital Money is Spearheading the Next Wave of Public Financial Management (PFM) Reforms in EAP

IMAGE FOR BLOG FOR JULY 18 - 4PEMNA Blog - Digitla money in EAP June 23_2017+TCclean

Post by Khuram Farooq and Leah April[1]

The use of digital money is increasingly the dominant PFM reform priority for most governments in the EAP region. This trend is being led by Korea.  China, Indonesia, Vietnam, Philippines, and Mongolia are also at various stages of implementing and expanding their use of digital money. With this reform, countries are aiming to transform their government payments, disbursements and receipt systems.

This is the key conclusion from the Public Expenditure Management Network in Asia – Treasury Community of Practice (PEMNA T- COP) meeting, which was held on March 1-2 in Bangkok. Twelve PEMNA member countries from the EAP region participated in the conference. The central theme of the meeting was eliminating and reducing the use of cash in government transactions.

Traditionally, governments have disbursed payments to vendors, employees, social security beneficiaries, and citizens through checks or cash. During the earlier phases of PFM reforms, countries focused on strengthening these processes to ensure budget compliance and efficient cash management.  To achieve these objectives, many countries focused on strengthening their TSA (Treasury Single Account) and IFMIS (Integrated Financial Management System) as central tools in this reform initiative. Over time, the banking sector developed and expanded electronic fund transfer (EFT) mechanisms, as ETF gained ground, checks and cash payments, were reduced or eliminated. In many advanced economies in the EAP region, EFT are now an integral part of government operations.

Today countries are focusing on how to gain additional operational efficiencies, cost savings, convenience, transparency, and visibility by reducing the use of cash where EFT cannot be easily applied. Challenging scenarios include making travel payments to employees to pay for their lodging and incidentals. Another challenge is making payments to citizens such as social benefits, when beneficiaries do not have bank accounts or access to banking services because they live in remote areas. In addition to payments to citizens, policy makers are also focusing on how to facilitate payments made by citizens such as taxes and fees.  

The use of digital money is leading the way in addressing these challenges, and is a key priority among many policy makers in the EAP region. The issuance of credit cards to government employees is the dominant trend. Debit cards and mobile money options are also being implemented in several countries. The summary below highlights what individual PEMNA member countries are doing and their plans to address these challenges and improve their systems. During the meeting, countries shared experiences and exchanged lessons learned with their peers.

Cambodia has collaborated with a local institution that provides mobile banking services to facilitate payroll payments to civil servants. In addition, this initiative has enabled more timely and easy payment by citizens for services including electricity, service charges for businesses, vehicle registration and inspection. The expansion of these services is planned over the next few years.

China currently issues credit cards to their employees for their travel needs and they plan to enhance their use going forward. They plan to further improve mechanisms and policies, including negotiating with credit card vendors/banks to reduce the user fee and increasing the POS (Point of Sale) equipment. In addition, they will arrange with line ministries policies and regulations to ensure reasonable credit card usage and controls. In improving their systems, they are learning from the Korean experience.

Indonesia has piloted the use of credit cards for government transactions (payments and receipts). They plan to expand the pilot through to early 2018. Moving ahead, they plan to complete the study, draft regulations and build electronic monitoring systems.

The Philippines plans to use debit cards to disburse aid to citizens in remote areas. They plan to complete joint accreditation of the government and the banks, and to select stores where cardholders can present their debit cards to purchase goods. By early 2018, the government plans to deploy a single card for each family for all types of assistance. This initiative is based on the successful experience of Indonesia.

Vietnam is planning to expand the use of credit cards to employees at 3 large cities and rollout the POS equipment at district treasuries by June 2017.

Mongolia plans to pilot the use of credit cards for travel expenditures during 2018. To achieve this target, banking laws are being reformed.  The government is drawing on the experiences of other countries to design and implement this project.  

Thailand is planning to implement a social welfare e-payment system in early 2018.

Apart from the advanced reform agenda discussed above, countries are continuing to strengthening their basic PFM systems including IFMIS, TSA and reporting. These initiatives continue to dominate the reform efforts of the remaining countries in the region, including Malaysia, Myanmar, Brunei, Lao, and Timor-Leste.

[1] Khuram Farooq is a Senior Financial Management Specialist and Leah April is a Senior Public Sector Specialist both at the World Bank.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Comments

Excellent contribution. Really glad to see that this is generating traction. I hope that this will motivate some research on the impact this is having on budget management

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