Editorial: Digitalization starts affecting core processes

The past 13 months will not only be remembered by the unprecedented adverse effects of a pandemic, but also by a shift in digitalization of governments. Of course, all governments—even in the most remote corners of the world—had introduced IT systems many years before. But most of those systems were replicas of paper-based processes. Instead of submitting, processing and archiving paper forms, administrations developed ways of performing some or all of these steps electronically. However, the processes did not change much. PDFs just substituted paper and, more often than not, in a rather cumbersome ways—for instance by scanning paper submissions.

Public financial management (PFM) was no exception to this. Although IT systems have been widely used for budgeting and accounting since the 1980s, most systems basically work the same way as they did previously: for example, the general ledger in accounting is often just an electronic form of the earlier thick book. The accounting process is still a process coding supporting documents and then systematically evaluating for accountability and decision-making purposes. This all takes time: mainly because of the lack of automated interfaces. In the best cases, there are batch processes between the systems. In fact, the ‘digital red tape’ identified by Bauwens and Meyfroodt (2021, in this issue) may be one of the obstacles to overcome.

But a severe economic crisis, like the one we now are in, shows us that governments simply do not have the time to wait for data to be processed in this traditional way. It is clear that this has to change quickly, if PFM is to remain relevant.

Public-private partnerships (PPPs) may be a way to achieve this shorter time frame, although Verweij and van Meerkerk (2020, in this issue) could not find significant evidence for fewer time overruns. Oliveira et al. (2020, in this issue) have confirmed that there are no systematic benefits of PPPs, but there are entity-specific ones.

But regardless of the way the digitalization of PFM is undertaken, expectation gaps, such as the ones identified by Budding and Wassenaar (2020, in this issue) between managers and management accountants, do exist and have to be addressed. Hay and Cordery (2020, in this issue) identify similar issues and challenges in respect of financial statement audits performed by supreme audit institutions (SAIs).

One of the main financial issues caused by the pandemic is a sharp increase of public sector debt which, for most countries, was not exactly small before the virus struck. Chan et al. (2020, in this issue) offer some insights from China, where government liabilities have been, and still are, a key challenge. Public debt is also the main economic connection between governments and financial markets. Warren (2021, in this issue) explains in his debate article how financial markets are changing due to digitalization and that this change has some impact on governments. Increasingly, machines take investment decisions and they are using data, which closes the loop to the information provided by financial reporting.

The current digitalization wave is likely to change PFM processes in a more fundamental way than we have previously experienced. Arguably, policy-makers are the ones who will benefit most from such a change. Therefore, they need to provide the required resources to finance such investments.