Blockchain can bring a revolution in public financial management
Imagine you could rewrite the rules of public finance. Imagine not having to cut social services or raise taxes to plug the damaging hole in your budget. Imagine building more schools and training more doctors without having to borrow money, raise taxes or cut other budgets to pay for them. Imagine being the generation of public service leaders who create high-quality, well-funded public services without leaving tomorrow’s taxpayers on the hook.
Or imagine that you could rewrite the rules for public lending. Imagine if organizations that spend donor or investor money on public projects could accurately, and in near real time, track how the money was spent and generate data to demonstrate the impact it had. Imagine how much more confident donors or investors would be that their money was being used effectively—and the impact that confidence could have on our collective capacity to do good around the world.
Is this too good to be true? Not any more.
Effective public financial management is always a top priority for governments. But in recent years – as demographic changes and crises, including the Covid-19 pandemic, have driven public spending and investment, while low growth has emerged as a feature of the modern global economy – renewed fiscal pressures have increased the need for progress in the way public finances are managed on.
For decades, governments and public agencies have used taxpayers’, donors’ and investors’ money as efficiently as they could. But the system has not been perfect. It costs money to move funds through the government value chain, as they make their way from the central treasury or finance ministry through the program departments to the delivery agencies and their partners, and to the final payee or service recipient. And it is the same for a development agency, as money is allocated to a program and then moves through the chain of funding and delivery agencies towards the final recipient.
But all this is about to change. Now, digital technology – specifically blockchain – gives public finance managers the ability to significantly reduce the cost of spending public money, improve control over those costs and see, in near real time, the results they achieve.
A blockchain solution can integrate financial and non-financial reporting in the authorities. It unifies and consolidates information within and across government and its external partners, producing near-real-time expenditure and performance reporting and advanced analytics at both aggregate and granular levels.
Prysm Group, specialists in the economics of new technologies, have carried out research for the EY organisation. Prysm Group studied the US federal government to examine the potential impact of using a digital technology-based approach to better manage public money.
Their findings illustrate the potential administrative savings and added value from better allocation of expenditure that this type of improvement in public financial management can achieve. A forthcoming report published by OMFIF and EY explores these findings, which will also be presented at the launch event.
This is an opportunity for governments to spend money more effectively – in ways that improve public services, boost economies, benefit communities and change lives. And it delivers responsible results for citizens and investors.
Government leaders who have the vision to adopt the new technology now have the opportunity to gain an unprecedented level of visibility, predictability and control over the use of public money. They can realize a long-standing ambition for more efficient and effective public financial management.
Discover more about EY Blockchain for Public Finance.
Mark MacDonald is head of EY Global Public Finance Management.
The views reflected in this article are those of the author and do not necessarily reflect the views of the global EY organization or its member firms.