How Govtech can bridge $418bn investment gap in digital infrastructure

By Onome Amuge.

The International Monetary Fund (IMF) has identified government technology (GovTech) as a crucial tool in achieving universal connectivity by incentivizing or directly investing in building internet infrastructure capable of bridging the $418 billion investment deficit in digital infrastructure needed to connect unconnected households globally.

GovTech, as defined by the World Bank, is a technology-based government approach to public sector modernization which is centred on three core areas for modernization including universal accessibility, citizen-centric services,and the delivery of efficient and transparent government. Simply put, it is an implementation of government policies away from paper-based workflows into more modern digital infrastructure.

The IMF report titled “Harnessing GovTech to Tax Smarter and Spend Smarter”, found that emerging and developing countries have the most potential to leapfrog their development trajectory by adopting digital technologies. Unfortunately, some governments have been slow to harness the potential of digital technology to improve delivery of public services and strengthen public finance.

“These countries lag considerably behind in internet connectivity, a key enabler for adopting and using digital technologies. Globally, about 2.7 billion people still need to be connected. Within countries, a digital divide persists across age and gender. Bridging this divide and benefiting from digitalization takes adequate digital infrastructure,” the report noted.

According to the financial agency of the United Nations, adopting govtech in fiscal operations can strengthen public finance on both revenue and spending sides as digitalization enables governments to leverage technology to enhance revenue collection, improve efficiency of public spending, strengthen fiscal transparency and accountability, and improve education, health-service delivery, and social outcomes.

These, it explained, can be achieved through better decision-making processes, adoption of international standards and practices, transformation of public financial management processes and systems, and improved taxpayer and trader services to support voluntary compliance and trade facilitation.

Analysis by the IMF on the impact of GovTech shows that e-filing, e-invoicing and electronic fiscal devices could lead to a significant increase in tax revenues, as the adoption of e-invoicing and electronic fiscal devices could improve revenue mobilization by up to 0.7 per cent of GDP.

Further analysis suggests that GovTech’s impact on revenue administration is enhanced by expanding digital connectivity and ensuring sufficient staffing and expertise among tax officials. Similarly, the automation of budget payments using digital technologies is associated with more budget transparency and an improvement in the efficiency of expenditure.

The IMF report also showed that GovTech can also improve the effectiveness of social spending and the quality of public service delivery. It noted that digital interventions, such as providing students with equipment and software, can improve education outcomes.

Govtech is also considered a development that can  help improve quality of care, increase the coverage of underserved populations, and optimize resource utilisation, with electronic health records, telemedicine, and digital platforms for patent licensing, procuring medicine, and monitoring infectious diseases areas of digital innovation in the health sector.

However, the IMF report admitted that implementing large digitalization programmes is a complex undertaking and requires careful planning, adequate resources, political support, and appropriate change management processes.

It stated further that GovTech could be challenging especially for emerging economies as digitalization may require changes in regulations and established processes, adequate staffing and expertise among officials, and strong safeguards for data security and privacy to protect sensitive information.

“Without adequate safeguards, implementing complex digital solutions could even be counterproductive and facilitate corruption,” it said.

In addition to infrastructure, the report noted that digital affordability and digital literacy are crucial.

Another challenge seen to be counterproductive to GovTech is the high cost of internet subscription costs in low-income developing countries, where, relative to average incomes, the average cost is nine times the amount citizens in advanced economies spend.

To make internet access more affordable, the IMF encouraged governments to consider offering discounts or vouchers on subscription fees, adding that promoting digital literacy programmes is essential to overcome reluctance among specific populations, particularly older individuals, to embrace new digital technologies.

“By adopting an approach to digitalization where citizens’ needs are the primary focus and engaging in close collaboration with stakeholders, govtech can help overcome these challenges and unlock its full potential to enhance public services for society,” the report noted.

The IMF also reiterated its commitment to support countries through its capacity development in implementing govtech solutions for public finance.