Transforming public financial management systems

Last year, Public Digital collaborated with ODI Global, a global think tank, to study the impact of digitisation initiatives in public finance ministries. As we reviewed the material, it became clear that these initiatives employed widely varying approaches to transformation and technology. For the analysis to be meaningful, we needed a way to categorise and compare the approaches taken in each case study.

While digital transformation encompasses much more than technology choices, this particular project focused on technology as a starting point. To support the work, we developed a simple taxonomy to identify and classify the key themes in the technology decisions observed across the case studies.

Every country needs a good public financial system

Public financial management systems lie at the heart of how governments function. Beyond setting and tracking budgets, they manage debt and investment, collect taxes and handle salaries and benefits. A modern state cannot operate effectively without a well-functioning digital system coordinating the flow of money.

This is especially critical for low-and-middle-income developing countries. Over the past 20 years, organisations like the International Monetary Fund and World Bank have supported these nations in adopting and improving their public financial management systems, aiming to enhance fiscal management, increase transparency and facilitate social programmes. Today, nearly 200 countries have a Financial Management Information System (FMIS).

However, as explored in our previous work with ODI, countries have taken vastly different approaches to developing these systems. Some have built bespoke solutions, while others have customised off-the-shelf systems. From software design and data integration to security and ongoing maintenance, these diverse strategies lead to a wide range of outcomes in system performance and the services they support.

Our taxonomy provides a common language

National governments need guidance and support to manage and improve their public financial management systems. Yet, the diversity of approaches makes this a challenging task for donors. Without a common language to describe these systems' development, it’s hard to compare experiences or gather evidence on what works in different contexts.

In response, we developed a straightforward taxonomy to describe decisions related to public financial management systems. This taxonomy offers a framework to analyse and understand these systems and their development approaches.

Two main parts of the taxonomy

Our taxonomy identifies two key aspects of the software approach, each with four categories:

1. Technical Decisions – Covering how the finance system is designed.

   • Software structure

   • Data integration

   • Frontend approach

   • Legacy migration

1. Delivery Approaches – Addressing how the system is provided.

   • Project methodology

   • Licensing and sourcing

   • Security

For each of these eight categories, we’ve outlined the primary approaches. For example, under “licensing”, we describe options such as “buy and configure”, “rent and configure” and “build from components”. This allows each country’s approach to be classified systematically.

Looking to the future

The technical decisions and delivery approaches taken today determine both the immediate and future outcomes of public financial management systems.

• Immediate outcomes include usability, reliability, scalability, security and performance.

• Future outcomes depend on how decisions made during development enable or constrain the system’s ability to adapt, sustain and improve over time.

Technology projects are never truly “finished”. Continuous work is needed to sustain solutions, meet evolving user needs and keep pace with changing contexts. The taxonomy emphasises how critical early decisions are for a system’s long-term success.

A Practical tool for enabling improvement

Our taxonomy, supported by practical guidance, can be applied to describe individual components of a digital finance solution or provide an overview of an entire national system. We are already working with partners to apply it to country case studies, generating examples of its use in real-world contexts.

The taxonomy is useful in several ways:

• It enables conversations about how a country’s technical and delivery approaches might evolve.

• It can be paired with performance data to identify which decisions lead to better outcomes.

• It supports countries in learning from digital transformation efforts globally.

Supporting transformational approaches

As countries seek to improve their finance systems, many are inspired by global initiatives like Government as a Platform (GaaP), Digital Public Infrastructure (DPI), Digital Public Goods (DPG) and GovStack. These initiatives champion open-source solutions, sharing and reuse.

Our taxonomy helps governments understand their current systems and determine the steps needed to adopt these more transformational approaches. It provides a common framework for analysing current practices and planning for future improvements.

Learn more

We are excited to share this work and hope it becomes a valuable resource for improving public financial management systems worldwide. To dive deeper into the taxonomy and its applications, read the full paper here.