Layers upon layers: how financial data paints a picture of the pandemic

By on 03/02/2021 | Updated on 04/02/2022
Many sources, one picture: Bringing together different datasets gives central government officials a rounded view of the pandemic’s impacts on economic activity and household incomes. Illustration by Katy Smith

Governments have found new sources of real-time financial data that give a clear view of COVID-19’s impact on industries, businesses and workers. At the 2020 Government Finance Summit, top officials from around the world dipped into this treasure trove for economic policymakers and service providers

After the 2008 credit crunch, governments spent vast sums on economic stimulus packages – propping up their financial sectors and injecting demand into the economy. But by comparison to the money being injected into national economies during the pandemic, the sums spent a decade ago were small change. Speaking at the 2020 Global Government Finance Summit, Tony Gardner – a former US Ambassador to the European Union and adviser to knowledge partner Mastercard – explained that during the financial crisis, Germany spent 3.5% of GDP on its stimulus package; in 2020, it forked out 33% of GDP. In the USA, during 2008 the state spent 4.9% of GDP boosting the economy; in 2020, it’s laid out 12.1% of GDP.

All the usual fiscal rules – which focus attention on longer-term horizons – have been set aside to respond to the crisis, commented Dr Markus Sovala, director general and economic policy coordinator at Finland’s Ministry of Finance. “Rules are needed when you need something long-term and a long-term perspective,” he said. “But when the situation has changed enough, it is very difficult to honour your rules, and you end up in a situation where there is no credible rule any more.”

The Summit – an annual gathering of finance department leaders – had already explored Spain’s pandemic response, the future of financial management and the targeting of financial support. At the session on resource allocation, system oversight and the drive for public sector impact, participants explored how governments are using data to build real-time, multi-faceted pictures of the pandemic’s impact on national economies, industrial sectors and people’s earnings.

More information, greater trust

There has been, noted Gardner, a “once in a generation” shift to digital platforms, and rapid adoption of “fintech” solutions for government-to-citizen payments and government-to-business transactions – increasing efficiency and broadening market participation. “There is no better time to collaborate and deliver digital services that improve the lives of citizens around the world,” he said.

Tony Gardner, former US Ambassador to the European Union and adviser to Mastercard

Meanwhile, new sources of data – anonymised and aggregated, and often provided through new or existing public-private partnerships – have improved governments’ ability to directly track the impact of public spending. “Even though COVID-19 has meant a lot of problems, there has also been a lot of progress in the way that governments operate,” said Sovala.  

And as stimulus-distribution services build new connections with citizens and small business owners – issuing tax refunds, supporting more flexible procurement and automating direct payments – there has been an encouraging increase in public trust in government.  The 2020 Spring Update of the Edelman Trust Barometer found that trust in governments had surged an average of 11% since the consultancy’s annual survey in January, said Gardner – leading to the highest results in 20 years. “That is a unique opportunity and it can’t and shouldn’t be wasted,” he said.

Spending sensibly

“History has shown that during great shocks, great crises, all eyes turn to the state,” agreed Noureddine Bensouda, general treasurer of the Kingdom of Morocco. With the crisis showcasing the social purpose of governments, he argued, that impetus should be harnessed to focus on longer-term capacity-building. “The way we spend public money today shapes our future and the world we will live in tomorrow. It is time now for reallocating budget resources from lobbies in favour of the whole society and nation.”

As Gardner noted, the pandemic has accelerated governments’ work to channel transactions with citizens and suppliers through digital platforms – improving efficiency and targeting money at the points of greatest need. “A UK government-sponsored study found it cost £9 [US$12] less to process a digital invoice versus paper, or three days versus 13.5 days,” he said.

Policies designed to preserve jobs and businesses have benefitted from new forms of partnership with the financial service sector, he added. For instance, making direct disbursements to citizens outside the traditional mechanisms of tax or pension systems – by issuing commercial pre-paid cards to small businesses, for example, or pre-paid cards allowing citizens to purchase groceries – creates the potential to directly target specific beneficiaries.

Mastercard offers a global menu of examples of what Gardner termed “G2P”, or government-to-person, payments. In Russia, he said, the company helped to build a digital tax refund platform to direct support to self-employed workers, with funds issued onto debit cards already held by 200,000 individuals in just three days. Thailand was able to send funds directly to individuals’ bank accounts using its Mastercard-backed PromptPay system, sifting out fraudulent claims by cross-checking with other databases. In Chile, Israel and Belarus, emergency funds were disbursed to pensioners on pre-paid debit cards.  

Instant feedback

Digitising the allocation of funds also means better access to real-time data, in turn accelerating the cycle from policy design to implementation and review, and helping to promote accountability. “Digitisation helps in many ways; we obviously can’t control what we can’t measure,” noted Gardner.

Traditional tracking methods, such as quarterly economic surveys from national statistical agencies, look slow-footed when governments can call on bookings data from commercial travel and tourism platforms, or credit card company data on hospitality sector spending.  In the past, “economists were asked to go on the street and do interviews on: ‘How do you spend the extra 200 Euros the government gave you?’ But this is not reliable data,” Sovala noted.

 Dr Markus Sovala, director general and economic policy coordinator at Finland’s Ministry of Finance

The UK is particularly well-resourced in terms of insight into citizens’ spending patterns, according to Mastercard’s vice president for government innovation, Jennifer Duncan. Over 90% of UK salary payments are paid by bank transfer, she said: “That gives rich, aggregated datasets that are being used by the UK government to understand the impacts of their social interventions.”

In Finland, commented Sovala, a private accounting firm with a large market share released its customer data weekly – tracking variables such as the number of transactions, the average size of transactions, and the cash balance of its customers. “Even in SMEs, there is a lot of real-time information available for statistical purposes. It never covers the economy totally, but there is still enough information: you can see how the restaurant business is contracting rapidly, but the grocery sector is expanding rapidly,” he said.

A real-time view

When the pandemic struck, Sovala explained, Finland already had access to more data than most: embracing the concept of the “real time economy”, it had worked to foster digital platforms supporting transactions across business and government – addressing friction and latency. Three years ago, the Finnish Tax Administration asked employers to report their payroll outgoings every week, allowing fluctuations and trends to be mapped week-by-week. “It’s a handy and cheap way to collect information on tax and pension contributions,” he noted. “But also it’s a very rich dataset for many purposes.”

In Morocco, Bensouda was convinced of the benefits of a pivot towards deploying more digital solutions. “One of the main lessons from the COVID-19 pandemic is the fundamental role of the digital,” he said. “We have to refocus and accelerate digital investments to enhance transparency, accountability, and governance. [A] massive allocation of public finance resources to digital transformation is a necessary investment today in the lifeline of tomorrow.”

But whatever the spin-off benefits in terms of data analysis and the monitoring of public expenditure, the COVID-driven increase in state indebtedness has ripped up fiscal rules designed to support longer-term thinking and capacity-building. In the UK, as Duncan pointed out, the state’s aspiration to steer towards long-term horizons guided by a five-year Comprehensive Spending Review – announced in July – was later downgraded to a one year Spending Review. 

In Finland, COVID has required the government to decouple spending allocations from tax revenues. “The government has decided that it will honour the spending rule from 2021 onwards, but at the same time everything directly connected to COVID-19 will not be taken into account,” noted Sovala.

Prevention is better than cure

As the participants acknowledged, the uneven impacts of the pandemic have also focused attention on the longer-term underfunding of social and healthcare infrastructure. Peter Lim, director of fiscal policy at Singapore’s Ministry of Finance, summarised the issue: “There is a tendency to focus on the short term, but the public is now a lot more aware of the weaknesses in many systems, and is a lot more aware of the whole fragility in terms of sickness and health.”

Amplifying this point, Bensouda commented: “The shock wave of this crisis has revealed big health system deficits in many countries – even the most developed. We have come to realise that nothing can work if human beings are deprived of health, and that economic growth is truly dependant on it.”

Ultimately, spending allocations are for elected governments to decide, but Lim also highlighted the role of civil servants. “Do these unique circumstances present an opportunity? Is there a space for us as bureaucrats to bridge the short and long term?”, he asked. “Can we focus a bit longer-term, even though we are in sharp pain today, to build a better future?”

This report covers the third session of Global Government Forum’s 2020 Government Finance Summit. The first covers Spain’s financial response to the pandemic, and the long-term opportunities facing finance departments. The second explores how governments can best target financial support and restore economic growth. And the fourth and final report delves into how infrastructure projects can be delivered post-pandemic, and in a way that supports future growth.

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