Ideas & Updates

In the IMF’s Fight Against Corruption, Digital Payments are a Powerful Weapon

IMF managing director Christine Lagarde is to be applauded for her recent leadership in the fight against corruption, and her recognition that there is an increasingly limited role for cash in digital economies.

IMF managing director Christine Lagarde has recently spoken out strongly about opening windows to let more light shine on countries’ governance. Transparency is both a growing demand of citizens around the world, and a vital foundation for sustainable and inclusive growth. Systemic corruption — defined as abuse of public office for private gain — is associated with lower growth and investment and higher inequality, IMF research shows.

Public Financial Management and the Digitalization of Payments REPORT COVER

Public Financial Management and the Digitalization of Payments report cover

As the Fund targets corruption it is turning to digitization to drive greater transparency and financial inclusion. Crucially, the Fund is committing substantial resources in its 2020-2022 budget to an ambitious digital modernization agenda which will improve its capacity to help national governments, and drive meaningful impact.

I was recently privileged to co-author a chapter in the IMF recent book “Digital Revolutions in Public Finance” with Marco Cangiano of the Overseas Development Institute, and Alan Gelb of the Center for Global Development. The CGD has now published the chapter as a stand-alone paper.

In the report, we explain how integrating Public Financial Management (PFM) with broader digitization agendas can help governments to better manage public resources, broaden their reform goals and foster an inclusive economy, particularly for women.

Some specific benefits include:

  • Greater efficiency, productivity, and cost-savings.
  • The removal of ghost workers, and many other transparency benefits.
  • Reductions in shadow economies, and higher tax revenues.

Importantly, we point out that digitization is not a silver bullet solution for all of the challenges of PFM. Effective policymaking requires an integrated and collaborative approach drawing on lessons learned to date, and tailored to each country’s specific circumstances.

To help map out key features in this complex policy landscape, we present a range of high-level learnings that can serve as a guide for policymakers in their work. Here is a snapshot:

  • Ongoing, high-level leadership is essential at both the political and technical levels, ideally with central fiscal authorities in a leadership role.

  • An integrated approach is vital, with a focus on strong digital and regulatory infrastructure that supports an inclusive approach to PFM. Priorities include:

    • A telecommunications approach that encourages universal connectivity.
    • A level playing field for financial providers that encourages entry and competition and provides for low-income users.
    • Fostering interoperability so that payments can be made across providers at low cost.
  • A keen awareness of risks is needed along with actions to protect payments and data security, particularly in relation to citizens’ privacy or classified government information amidst a growing digital cloud. For example:

We applaud the IMF for its commitment to transparency and digitization, and invite readers to contact us if you would like to learn more.