ARAB MONETARY FUND ISSUES SECOND ISSUE OF "POLICY BRIEFING" SERIES ON "DIGITIZATION OF PUBLIC FINANCE"

by **claud39** Thu May 02, 2019 9:09 am

ARAB MONETARY FUND ISSUES SECOND ISSUE OF "POLICY BRIEFING" SERIES ON "DIGITIZATION OF PUBLIC FINANCE"
2019-05-02

Studies indicate that the shift to electronic payment and collection on both sides of the budget is saving about $ 320 billion a year in developing countries

Digitization of public finances enables governments to increase tax revenues and combat tax evasion and help to raise the efficiency and transparency of public procurement systems

Arab governments are keen to digitize public finances as part of their national plans for digital transformation and financial reform

The existence of national visions of electronic transformation and strategies for financial inclusion and electronic identity systems is the basis for the successful digitization of finance, protecting the confidentiality and privacy of data and supporting cybersecurity as key pillars for reducing potential risks

As part of its interest in developing its research activities, the Arab Monetary Fund launched a new periodic research series entitled "Policy Brief", which aims to support the decision-making process in the Arab countries by providing brief research publications that address the most important priorities and topics of interest to member countries with recommendations to policy makers.

The second issue of this series touched upon the subject of digitizing public finances. He pointed out that the unprecedented digital changes witnessed by the world have affected all aspects of life and resulted in significant gains in productivity and competitiveness through its role in restructuring the performance of many Production and service sectors, as well as the mechanisms of the functioning and performance of macroeconomic policies, including public finance. As an extension of these transformations and within the framework of the Fourth Industrial Revolution and its associated technologies such as industrial intelligence, large data, the blockbuster, biotechnology and other technologies, many governments have taken advantage of these techniques to increase the effectiveness of public finance management in achieving their objectives Through the development of more efficient mechanisms to raise and spend public funds to achieve the objectives of fiscal policy.

On the public revenue side, tax digitization has helped many countries increase tax collection levels and expand the tax base by shifting to electronic systems for tax compliance, compliance, collection and e-billing. While digitizing public expenditure has contributed to the efficiency of government procurement systems, combating corruption, improving the efficiency of social remittance systems by creating more accurate databases for those eligible for support, and channeling cash transfers to them through electronic payment channels in an easy, secure and verifiable manner such as telephones Using biometric fingerprint signatures, thereby enabling governments to reach a broad base of beneficiaries at the lowest cost.

In this context, it is estimated that the shift to collection and e-payment on both sides of the public budget (revenues and overhead) can help achieve annual economic savings estimated at at least 0.8 to 1.1 per cent of GDP per year in countries Developing countries, from $ 220 to $ 320 billion. Economic gains may exceed this level if indirect positive externalities are taken into account. For example, digitization of taxes has led to a 50 per cent increase in India's tax base in less than a year, which has helped generate more public revenue.

The second issue of the "Policy Brief" series referred to a number of international experiences in the digitization of public finances, pointing out the unevenness of the experiences of countries in the digital transformation of the public budget processes. For example, all government payments associated with social remittances in the United States have been digitized since 2013. Other developed countries have also made significant achievements in this regard, with the proportion of non-digital government payments in Spain and Italy currently at 10 per cent. Countries such as the UK, Australia and Russia can now collect income and corporate taxes immediately through payroll and e-billing systems.

On the other hand, there are many models and global experiences in the digitization of public finances in developing countries. In China, the government, by reviewing electronic billing systems and using blockbuster techniques, can verify corporate compliance with VAT and fight tax evasion. A pilot experience of digitalization of public finance is available in India. In 2009, the government adopted the national biometric identity project known as Aadhaar, the largest national identity project in the world.

In this context, the second issue of the policy brief referred to examples of the digitization of public finances in some Arab experiences. The Arab governments, within the framework of their national plans for digital transformation and their efforts for financial reform, have tended to shift towards digitizing public finances. Many Arab countries have achieved significant successes in this regard. In Jordan, financiers are able to pay electronic tax on income and sales tax electronically. In the UAE, the Ministry of Finance has adopted a system of software and digital payment gateway to enhance the delivery of public services within the electronic dirham system, which was launched in 2001 and was developed in 2011. The e-Dirham system is characterized by multiple types of cards, Requires a bank account, all pre-paid, refillable and based on credit card withdrawal, paid or encased, in a smart and secure manner. In Saudi Arabia, the " S electronic payment platform to serve individuals, businesses and the government sector through the operation of an efficient and secure infrastructure and compatibility with best practices through the electronic payment platform for value added taxes In Egypt, the shift towards digitization of public finances in the context of " Vision of Egypt 2030 "and the National Program for Economic Reform, which includes a package of financial reforms aimed at modernizing public finance management, improving resource mobilization and efficiency of public spending using digital technologies. The Ministry of Finance has adopted a system for the dissemination of electronic payment and collection. J Morocco, the General Administration of Taxation tended to develop tax payment service via the Internet to enable financiers to acknowledge and e-payment of sales taxes and corporate income. The same is true in Tunisia, where it allows the financiers to pay taxes VAT and corporate income electronically.

At the regional level, the low tax burden measured by the 7 per cent tax revenue-to-GDP ratio in the Arab region, nearly half of the global average, is one of the most important challenges facing the region's fiscal policy, Towards further tax reform efforts by increasing collection levels and broadening the tax base. On the other hand, many Arab countries face challenges related to the need to reform support systems, increase the efficiency of remittance systems and accurately target eligible beneficiaries. There is also an urgent need to increase the levels of transparency and efficiency of public procurement systems. In light of the above, there are promising opportunities for Arab economies to benefit from digitizing public finances to increase the efficiency of public finances. In the context of Arab governments' efforts to adopt the digitization of public finances, it is important to harmonize the opportunities associated with this transformation while minimizing the risks associated with digitizing public finances. In this context, the second issue of the policy brief referred to some of the policy implications in the Arab countries, the most important of which are:

The need for an integrated national vision for digital transformation: The successful global experiences in the digitization of finance are based on the existence of comprehensive national visions of digital transformation in accordance with a gradual framework supporting this transformation that ensures the participation of all concerned parties according to a clear timetable that takes into account the provision of the necessary requirements and the infrastructure supporting this transformation Which can be built on to help the processes of digital transformation in different sectors according to the integration frameworks and specific roles of the stakeholders to ensure the success of this transformation. Accordingly, the Arab countries, many of which adopt visions and strategies for the future of digital transformation, take advantage of the momentum provided by the technologies associated with the Fourth Industrial Revolution to develop and increase the levels of efficiency of economic performance and to make a shift in public policies and the provision of government services that positively affect the welfare of citizens.

Financial inclusion is the foundation for the success of public digitization initiatives: Financial inclusion is the foundation for the success of public digitization initiatives based on the shift towards electronic payment and collection systems. Population access to these digital services requires a supportive national vision to increase levels of financial coverage with a focus on disadvantaged areas and the provision of necessary technologies To facilitate such access in order to benefit from the Government's tendency to digitize public finances. Statistics indicate a modest rate of access of individuals and companies in the Arab region to financial and banking services compared to the global average and other regions. Therefore, there is an urgent need to adopt strategies to support financial inclusion by focusing on increasing the financial coverage of youth, females and people in remote areas by applying a set of policies on the supply and demand side of financial and banking services.

Focus on considerations of privacy protection, data confidentiality and cybersecurity support Despite significant gains in the digitization of public finances, the experiences of some countries indicate, however, that there are some risks associated with this transformation, especially with respect to cases of violations of these systems, The privacy and confidentiality of registered data in some of them. Digital transformations require intensive efforts at the level of the official authorities to establish the necessary legislative, regulatory and institutional frameworks to protect the confidentiality of data and privacy and to support cybersecurity levels, thereby increasing the level of confidence of clients in the systems associated with digitization of public finances, especially in light of the volume of transactions carried out through these systems.

Institutional, legal and human capacity constraints: Digital transformation initiatives require government efforts to support institutional, legal and human capacity. On the one hand, the process of digitalization of public finances requires the enactment of a set of laws governing electronic payments, digitization of government procurement, and other legislation in support of this transformation, in addition to some institutional and organizational changes imposed by this type of transformation. It is also important to develop the human capacities in the ministries of finance and public budget implementation units to allow clear visions of what reforms are required at the level of public finance in general and how digitization of public finances can contribute to implementing and increasing the efficiency of these reforms in particular. Without these visions, Public finances in achieving the desired objectives.

The need to support the technical architecture: Numerous digital digitization initiatives are based on the existence of a digital infrastructure that is supportive and necessary for this transformation, notably the widespread spread of communication and information technology technologies, especially the widespread use of mobile phones and Internet access. Therefore, in a number of Arab countries there is a need to enhance citizen access to digital infrastructure, especially in disadvantaged and remote areas, which will help governments make significant gains from the trend towards digitizing public finances.

The full version of the issue is available at:

Summary of Policies (Issue 2) on digitization of public finances

[url=https://www.amf.org.ae/sites/default/files/%D8%B1%D9%82%D9%85%D9%86%D8%A9 %D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A%D8%A9 %D8%A7%D9%84%D8%B9%D8%A7%D9%85%D8%A9.pdf]https://www.amf.org.ae/sites/default/files/%D8%B1%D9%82%D9%85%D9%86%D8%A9%20%D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A%D8%A9%20%D8%A7%D9%84%D8%B9%D8%A7%D9%85%D8%A9.pdf[/url]

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