A paper setting out how finance ministries and other public institutions could think more strategically about emerging technologies in public financial management (PFM) – and overhaul their PFM processes and functions to be ‘digital by design’ – has been published by the International Monetary Fund (IMF).
The paper – titled ‘Harnessing Emerging Digital Technologies toward a New Frontier of Public Financial Management’ – is aimed at policymakers, technologists and development partners in governments across the world considering how to modernise PFM.
Many existing PFM digital solutions are ‘inadequate’ to meet governments’ evolving needs, despite large investments from governments and development partners, the technical analysis – which weaves in nods to hot topics in private-sector finance such as tokenisation – notes.
The opportunities and challenges of digital modernisation of PFM are explored by the paper’s four authors, who state that emerging digital technologies will play a ‘critical role’ as they possess the potential to ‘significantly transform’ traditional PFM processes and functions. But the authors also emphasise that technology alone will not transform PFM.
Examples of innovative initiatives from state authorities across the globe are plentiful in the paper, which sets out 10 practical considerations to help ministries of finance to leverage technology while managing potential risks. The paper, from the IMF ‘Technical Notes & Manuals’ series, is accompanied by a set of what are referred to as ‘technology cards’ (downloadable in one chunk as a 54-page pdf), which summarise technologies that can be adopted in PFM and potential use cases.
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Current PFM functions: ‘major shortcomings’
Almost all countries now use some kind of automated systems to support their PFM functions.
But the authors not that ‘major shortcomings’ typically include: poor quality or incomplete, inconsistent data; silos or lack of interoperability across databases, systems, and institutions; outdated IT architecture with limited flexibility, scalability, and security; little use of modern data analytics methods for decision making; and slow and cumbersome reporting features, as well as the lack of real-time monitoring.
‘Legacy PFM systems are often characterized by on-premises setups requiring manual updates, disconnected and siloed operations, and inconsistent vendor support, which lead to high overhead costs and operational inefficiency,’ they explain as they set out the rationale for the 46-page paper.
‘Digital modernization of PFM can allow further automation and smarter rules and processes; offer greater security, scalability, and flexibility at potentially lower costs; and ensure that systems can adapt and improve over time to meet growing and changing demands,’ they continue.
If properly harnessed, the authors state that emerging digital technologies can increase the efficiency and effectiveness by automating routine tasks; facilitate data-driven decision making across the budget cycle; ensure fiscal sustainability by supporting better data analytics and decisions in fiscal policymaking; strengthen transparency and accountability by allowing stakeholders to monitor the use of public funds; improve public service delivery by enabling seamless, real-time interactions between citizens and government agencies; and promote compliance with global norms through the adoption of international standards and practices in the PFM area.
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PFM’s digital potential
Governments could redesign their PFM processes and functions to be digital by design across areas ranging from budget preparation and public investment management to government payments and contracts, the authors summarise.
Budget preparation, for example, could potentially be redesigned with artificial intelligence (AI) agents automating data validation, reporting and workflow approvals. This would, they write, ‘eliminate redundant layers of review while enabling faster, evidence-based budget formulation.’
Public investment management could ‘leverage building information modeling tools; light detection and ranging technologies; and AI-driven analytics to ensure accurate planning, data-driven project monitoring, and timely, cost-effective completion of infrastructure investments.’
Government payments, including payroll and subsidies, could be processed ‘swiftly and accurately, reaching even the financially excluded and hard-to-reach populations through new payment systems and digital money innovations’.
Government contracts could ‘leverage smart contracts and Internet of Things (IoT)-enabled asset management registries to streamline initiation, automate execution, and ensure transparent oversight of public procurement processes.’
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Public debt management and technology
Tokenisation and distributed-ledger technologies (DLT) feature in the context of public debt management.
Public debt management could, the authors note, leverage tokenisation, DLT and central bank digital currencies (CBDCs) to enable the issuance and automated settlement of digitalised debt instruments, ‘fostering innovation and access for retail investors.’
The case for tokenised government bonds was analysed in a Bank for International Settlements (BIS) paper last year. With a total value estimated at $80 trillion (about £59 trillion), government debt comprises the ‘largest and most critical global asset market, and a cornerstone of the financial system’, the analysis – titled ‘Tokenisation of government bonds: assessment and roadmap’ – noted. Bond tokenisation ‘remains in its early stages but has gained momentum in recent years among both corporates and governments,’ the paper stated.
The IMF paper notes, in a separate example of innovative tech use, that ‘performance budgeting’ could apply machine learning to analyse targets and evaluate effects; or generative AI (‘GenAI’ – a sub-category of AI) to produce tailored reports for different audiences, ‘reducing the reporting burden.’
In a similar vein, they note that internal control and audit could use AI and analytics tools to detect anomalies, non-compliant and fraudulent transactions; facilitate proactive, adaptive and real-time risk management instead of manual sampling; and provide controllers and auditors with strategic insights into risks.
FURTHER READING Government bond tokenisation market ‘gaining momentum’: BIS analysis – a news article (15 July 2025) on the BIS paper referenced above
Probable, plausible and possible scenarios
Three scenarios – probable, plausible and possible – are set out.
The first scenario ‘maintains business as usual and represents the default option’, with legacy systems remaining in place and ‘slow adaptation, incremental improvements, and responsive measures to maintain operations.’
The plausible scenarioinvolves ‘progressive modernization that recognizes current trends.’
The possible future is a ‘transformative overhaul’ that ‘envisions a bold reconstruction’ through the comprehensive implementation of emerging technologies, such as: AI for budget planning and reporting; tokenisation for asset management; smart contracts for payroll, debt and procurement management; IoT for inventory and public investment management; web3 for digital identity (web3 is a term used to describe the ‘next iteration’ of the internet, built on blockchain technology); and digital money for payments and receipts.
‘The timeline for a radical overhaul of PFM systems, partial or full, depends on several factors but will realistically span 10 to 20 years,’ the authors state. ‘Early adopters or countries with strong digital foundations and leadership may achieve this future in less than a decade’.
The four main determinants are seen as: technological readiness; political will and leadership; institutional capacity; and resource availability.
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Country-specific examples
In respect of country-specific examples, the National Treasury Secretariat of Brazil and the Bureau of the Treasury of the Philippines are highlighted for ‘pioneering digital money use’ in fiscal operations.
The latter nation undertook its first tokenised bond issuance to institutional buyers, ‘raising $270 million and making a significant leap toward innovation in debt management’; and has pushed ‘to tap into the widespread use of the GCash app among Filipinos to offer tokenized bonds to small retail investors who previously lacked access to government securities, expanding the investor base and promoting financial inclusion.’
The Ministry of Finance of Honduras is mentioned for considering the use of Kubernetes for deployment. The authors explain that platforms (more fully: ‘orchestration’ platforms) such as Kubernetes ‘enable the management of microservices architectures, often within a cloud environment, ensuring smooth communication between services.’
South Africa and Uruguay are highlighted for publishing government budget and spending data using the Open Fiscal Data Package (a technical specification for publishing government budget and spending data developed in a collaboration involving organisations including Open Knowledge International, the Global Initiative for Fiscal Transparency and the World Bank’s ‘BOOST’ initiative).
‘Governments can have a section dedicated to Open Data in their fiscal transparency portal and use Application Programming Interface[s – APIs] to ensure open access, as well,’ the authors point out.
The paper includes 10 practical considerations to help finance ministries to leverage technology while managing potential risks. They are to: establish a clear vision and strategy; adhere to interoperability and standards; secure sustainable funding; anticipate and manage resistance; embrace agility and iterative development; emphasise user experience through engagement; build capacity and skills – ‘retain them’; collaborate and seek partnerships; mitigate security feasibility and ensure data privacy; and ‘keep an eye out for new emerging technologies’.
Its authors are: IMF division chief Sailendra Pattanayak, PFM advisor Lorena Rivero del Paso, head of digital excellence and advisory Herve Tourpe and research officer Chloe Cho.
