Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2016 | January 2015

Compact Development Assistance and Oversight: 609(g) and Due Diligence

(in $ millions) FY 2014 Enacted FY 2015 Enacted FY 2016 Request
Total Appropriation 898.2 899.5 1,250.0
Compact Development/Oversight 92.0 94.0 119.3
609(g) Assistance 20.0 19.0 32.7
Due Diligence 72.0 75.0 86.6

For FY 2016, MCC plans to use $32.7 million for assistance under section 609(g) of MCC’s authorizing statute and $86.6 million for due diligence to support programmatic oversight, quality control and other support for compacts in development and implementation, as well as post-completion work, such as data collection and evaluation.

A detailed focus on pre-compact planning, oversight, and post-compact evaluation is critical to the success of MCC program investments and to ensuring that MCC, MCC partner countries, and the development community are able to take advantage of the learning opportunities inherent in MCC programs.

The $119.3 million in funding will help the compacts in development with Lesotho, Liberia, and Niger reach board approval by the end of FY 2016 and will support MCC’s oversight for the compacts in implementation during FY 2016, the close-out of the compact with the Philippines, and compact development with any new partners selected in December 2015.

The funding also will support MCC’s development and oversight of threshold programs with Cote d’Ivoire and Sierra Leone as well as MCC’s work with threshold program partners selected in December 2015.

609(g) Assistance

Although assistance provided under section 609(g) of MCC’s authorizing statute represents less than 3 percent of MCC’s overall base request, this assistance is critical for compacts to succeed. MCC uses 609(g) assistance for key project preparation work such as feasibility and environmental impact studies, engineering designs, baseline surveys, financial management and procurement technical assistance, and other specialized analysis to help MCC determine investment suitability, scope, costs, implementation risks, and necessary risk mitigation measures. Such analysis also ensures that partner countries develop projects that will provide returns on MCC’s investment and can be implemented within the fixed five-year timeframe.

Due Diligence

Due diligence funds enable MCC to operate on a lean administrative budget relative to the size and diversity of its investment portfolio. Rather than permanently hiring technical experts whose services might be underutilized in the long term, MCC uses due diligence funds to procure technical expertise when strictly necessary to support compacts in development and implementation.

Due diligence funds allow MCC to obtain sufficient information to evaluate, assess, and appraise projects during compact development, effectively oversee and monitor compact implementation, conduct quality assurance, and then evaluate the results of a compact project once complete.

Due diligence funds also enable MCC to continue to operate on a lean administrative budget relative to the size and diversity of its investment portfolio. Rather than permanently hiring technical experts whose services might be underutilized depending on the mix of projects MCC oversees at a given time, MCC uses due diligence funds to procure technical expertise when strictly necessary to support compacts in development and implementation.

Due diligence funds supported MCC’s first set of independent impact evaluations, released in FY 2013, which were designed to use rigorous statistical methods to measure changes in beneficiary income related to farmer training activities. In addition to offering valuable lessons on how MCC can improve, the impact evaluations provide encouraging news about program successes:

  • The average completion rates for output and outcome targets were: 103 percent for Ghana, 103 percent for Armenia, 112 percent for Nicaragua, 131 percent for El Salvador, and 158 percent for Honduras.
  • In El Salvador, the evaluators found that dairy farmers doubled their farm incomes.
  • In Ghana, northern region farmers’ annual crop income increased significantly relative to the control group above any impacts recorded in the other zones.
  • In Nicaragua, project participants’ farm incomes went up 15 to 30 percent after two-to-three years of project support.

Due diligence funds also support the data and some of the technical expertise for calculating economic rates of return for compact investments. Economic modeling done after compact closeout helps to demonstrate that MCC is making cost effective investments. Through pre-investment economic modeling of expected economic rates of return, MCC chooses which investments are most likely to generate benefits (increased income for program beneficiaries). MCC also estimates expected return rates at project closeout.

The closeout expected rate of return averages 15 percent for the closeout investment portfolio at the end of 2014, exceeding MCC’s benchmark of 10 percent. In other words, net benefits in present value terms—benefits minus costs discounted at 10 percent—of MCC investments are positive. This average is based on the 57 closeout expected rates-of-return that MCC has completed to date. About two thirds of these projects (47) have exceeded MCC’s benchmark rate of return.