Posted 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).
The report identifies three categories of platforms – identity, payment, and data exchange – as DPI, because they are “critical almost everywhere”.
The relevance of digital identity and digital payment platforms for PFM is no longer revolutionary thinking. For example, 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.
Data exchange on the other hand, has long been the holy grail of PFM, due to the tendency of governments to work in silos.
While the report cites financial management information systems (IFMIS) as an example of a platform for data exchange, there are reasons to be sceptical about these systems’ ability to live up to this billing.
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”.
In contrast to examples of government platforms, an IFMIS typically does many things. In general, the system is designed for both financial control and financial reporting purposes.
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 frictionless data exchange associated with modern platforms that are built on registers, shared APIs, and microservices.
This absence of open architecture can make it difficult to identify the relationship between an IFMIS and other platforms in the civic stack.
Moreover, an IFMIS’s institutional coverage beyond central government can be constrained due to connectivity, licensing costs and human capacity challenges.
Sometimes, powerful government institutions evade the rigours of expenditure control by making payments outside the IFMIS.
This lack of coverage can limit the usefulness of the data that an IFMIS generates.
Lack of funding for in-house teams explains why many IFMIS are poorly maintained and used, particularly in lower income countries – see Diamond and Khemani (2005), Dener, Watkins and Dorotinsky (2011), Hashim and Piatti (2018).
Countries often opt for commercial off the shelf (COTS) solutions, which are usually not open source, and which they frequently customise. However, locally developed software (LDSW) solutions are also not well documented (see Pimenta and Seco, 2019).
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) in the UK uses a tool called OSCAR to produce financial reports, and 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 it does not work as expected.
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”. This highlights the difficulties of meeting a genuine need for multiple use cases through an IFMIS.
While it is common to find user committees with mandates to identify problems and emerging needs, most IFMISs serve the interests of the finance ministry. Taking a platform approach requires a more relentless mindset of 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” – Matt Miller, Bureau of Fiscal Service.
Greater understanding is needed to justify the investment
While an IFMIS may not conform to what many ‘technologists’ think of as a government platform, the idea of building a PFM platform for data exchange still makes sense. 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 should follow a platform approach. Similarly, 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 US$ billions invested in IFMIS with mixed returns and should therefore be more cautious about future investments.
 ODI, London.
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.