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

Executive Summary

(in $ millions) FY 2014 Enacted FY 2015 Enacted FY 2016 Request
Total Appropriation 898.2 899.5 1,250.0
Compact Assistance 676.2 665.5 987.3
Threshold Program 20.0 30.0 30.0
Compact Development/Oversight: 609(g) and Due Diligence 92.0 94.0 119.3
Administrative Expenses 105.0 105.0 108.4
Office of the Inspector General 5.0 5.0 5.0

The Millennium Challenge Corporation (MCC) is requesting $1.25 billion for Fiscal Year (FY) 2016 to advance American values and interests overseas through partnerships that combat poverty, spur economic growth, and deliver results. 

MCC was created with a call for a new compact for development defined by greater accountability for ourselves as well as our partners. Funding for MCC has led to measurable and remarkable improvements in the lives of the poorest, and has proven that poor countries will deliver on the promise of prosperity when given the right incentives. The FY 2016 request represents an opportunity to expand on the success of this model through continued innovation. This funding is needed to:

  • Deepen partnerships in Africa by supporting long-term economic growth in two of the countries hardest hit by Ebola, Liberia and Sierra Leone, and by bringing new opportunity to Niger, one of the poorest countries in the world and a key ally in the struggle against violent extremism. Through a threshold program in Cote d’Ivoire, MCC is forging important new ties with a country that is ready for growth, while in Lesotho MCC will deepen an already-successful partnership. 
  • Develop new partnerships in Asia including a compact with Nepal—MCC’s first-ever investment in South Asia—and new compacts with the Philippines and Mongolia.
  • Share innovation across the U.S. Government and development community. Good data yields good policy.  MCC has launched a partnership with the President's Emergency Plan for AIDS Relief (PEPFAR) to transform Africa’s capacity to generate and use data to improve that life-saving program.  Recognizing the central role women play in development, MCC also launched an effort to improve sex-disaggregated data for decision-making.  With the requested resources, MCC will redouble these and other efforts to strengthen and share our data—including the independent evaluations (both performance and impact evaluations) and efforts at transparency for which the agency is internationally known.
  • Support regional growth.  Legislative language included in this request would allow MCC to make selective regional investments that facilitate trade flows, yield high economic returns, and deliver economies of scale. In Central America, MCC could link existing road infrastructure to promote regional trade that will create economic opportunities in a region beset by the violence and economic desperation that fuels illegal immigration.  In West Africa and South Asia, MCC could finance the development of infrastructure and policies to facilitate the regional trade in electricity in these two regions. 
  • Leverage the U.S. and international private sectors.   MCC is opening the way for private investment in Africa’s power sector by contributing to the Power Africa initiative and making investments in other MCC eligible countries where lack of access to electricity is a binding constraint to growth. The agency is working to increase investment and bankable public-private partnerships as part of its compacts by deepening the involvement of U.S. businesses in partner country programs through investment missions, new investment partnerships, and enhanced outreach.  
  • Design better compacts, fasterMCC will ensure new compacts are developed in a more efficient and rigorous manner with respect to cost, time and quality to ensure that high-quality compacts are designed rapidly following a country’s selection by the MCC Board of Directors. Key changes, such as early and phased mobilization of compact development funding to support initial engagement with new country partners; streamlined analysis to more quickly identify core areas of focus; and new operational guidance for MCC country teams, will all support this effort.

The sections that follow provide additional detail on the priorities listed above, and on the specific funding requests for Compact Assistance, Threshold Programs, 609(g)/Due Diligence, Administrative Expenses, and the Office of the Inspector General.

Five-Year Budget Plan

Long-range planning is fundamental to the MCC model of development. MCC makes large, multi-year investments addressing partner country constraints to economic growth, and projects economic rates of return over 20-year windows to select projects with sustainable growth prospects.

Accordingly, the FY 2016 budget request incorporates projected five-year funding requirements that are based on MCC’s historical size and execution rate of compact investments, including pipeline projections for funding at least three bilateral compacts each year,  or two bilateral compacts each year and one regionally-focused investment every 2.5 years on average. The budget framework will be refined each year based on the most recent developments in the compact pipeline, information gathered from the agency’s active portfolio and other relevant data, such as changes in the candidate country pool.

Compact Size and Fiscal Years’ Appropriations Being Drawn on (in $ millions)
Country FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Compact 1 (bilateral) 267 409 418 428 438
Compact 2 (bilateral) 360 409 418 428 438
Compact 3 (bilateral) or Regional Compact Funded Over 3 Years 360 286 293 299 306
Total 987 1,104 1,129 1,155 1,182

*Dollar figures are estimates using an inflation assumption of 2.3 percent in accordance with OMB Economic Assumptions included with the FY 2016 President’s Budget.

 

The FY 2016 budget request will assist in the efficient allocation of resources over time and will also have positive effects on MCC’s potential and current partner countries. A high funding baseline will encourage potential partner countries to take difficult steps to improve policy performance to be selected for a compact because of the greater expectation of funding being available in the near future. Also, countries with compacts currently in development will need to compete among other partner countries for funding within the forecasted baseline with timely and high-quality project proposals.

If Congress does not provide concurrent compact authority as outlined later in this document, MCC will, consistent with historical practice, pursue a third bilateral compact each year on average, in lieu of a regional compact every 2.5 years.

Sharing Data to Increase Accountability and Local Engagement

Sharing and utilizing data effectively is essential for holding donors and partner countries mutually accountable and will contribute to more effective use of budgetary resources from domestic and international sources.

MCC is seeking to improve the global availability, accessibility, quality, and use of data. This includes building on the agency’s leadership in data, transparency, and gender equality, as well as the multi-stakeholder International Aid Transparency Initiative’s (IATI) technical standard allowing data to be compared.  Current partnerships to achieve this will be expanded in FY 2016 and include:

Country Data Hubs

The President's Emergency Plan for AIDS Relief (PEPFAR) and MCC launched a new partnership advancing the U.S. Government’s efforts to increase data transparency, citizen access and use of data for decision-making, and mutual accountability.

This partnership will work with eligible countries to create “country data hubs” that compile, curate, and visualize a wide range of existing health, gender, and economic data.  The hubs will have a governing board with representatives from the government, donor community, private sector and civil society, and comprise both a physical space with data analysts and a virtual space that engages a broad group of stakeholders.  By investing in analysis and reporting through these hubs, the partnership will support country-owned efforts to engage in data-driven strategic planning and implementation around policies and programs related to health and economic development.

Civil society stakeholders will be critical partners in contributing and utilizing data to optimize program impact and ensure accountability. Country data hubs will also complement PEPFAR’s and MCC’s efforts to increase transparency, country monitoring, and accountability. Additionally, they offer the opportunity to promote and align resources with multilateral partners, bilateral donors, private foundations, and the private sector by gathering and analyzing data on funding streams, programs, focus regions and results. By July 2015, PEPFAR and MCC expect to announce country data hub partnerships in a few countries that would become operational over the next year, and engage the public and private sectors to ensure sustainability.

Data 2x

Launched in 2012, Data 2x is a program of the United Nations Foundation that highlights global gender data gaps and develops and supports partnerships to fill priority gaps.  Through the initiative, MCC will systematically review the data he agency has collected and prioritize the publication of all sex-disaggregated data by the close of 2015, as well as increase future gender data collection and use through improved survey design and monitoring and evaluation protocols. MCC will work with partners to develop and implement recommendations for how gender data can be more fully incorporated into the IATI reporting standard, with a special focus on sex-disaggregated results data.

Maximizing Poverty Reduction through Regional Investments

MCC pursues its mission of reducing poverty through economic growth by making time-bound grant investments while leveraging the policy reform and private sector engagement needed to ensure the impact and sustainability of projects.

The elements shown to achieve this—selectivity (using data and evidence to carefully select the countries where MCC invests), country ownership (involving partner countries in proposal analysis, decision-making and implementation of projects) and a focus on results (using economic analysis as a basis for investment decisions, and carefully tracking inputs, outputs, outcomes, and impacts)—are inherently bilateral in nature.  

There are important reasons, however, to systematically consider a regional approach to poverty reduction. Under the right circumstances, regional investments present opportunities to take advantage of higher rates of return on investment and/or larger scale reductions in poverty. The economic impact of such an approach has the potential to benefit from economies of scale, to support public goods that cross borders, to reduce negative externalities, and/or to compensate for asymmetries in costs and benefits.

In recent years, MCC staff have identified a number of cases where taking a regional approach may have allowed MCC to increase already substantial project benefits and impacts. Examples include working with Liberia and Sierra Leone on a regional power pool, connecting roads in Central America, and addressing regional issues that hamper trade in Benin. In addition, to the degree possible within MCC’s existing authorities, some limited regional work is already underway: the coordinated public-private partnership approach in Central America serves as an example.

At present, however, MCC only has the authority to sign and implement one compact at a time with any given partner country. As a result, to make a coordinated regional investment work across several countries, MCC’s board would have to select a block of countries at the same time for coordinated project development and compact signings. In this context, MCC is pursuing legislative changes needed to overcome the timing constraints of the selection of countries that have limited MCC’s practical ability to invest regionally.

Operationalizing regional investments

Under the right circumstances, regional investments present opportunities to take advantage of higher rates of return on investment and/or larger scale reductions in poverty.

MCC would maintain and build upon the many core elements of its operational model so they can be more fully leveraged to produce high returns on investments. In any regional investment, MCC’s would continue its:

  • Transparent process for selecting the best-governed poor countries. Selection of regional investments would be based upon the existing country selection system, with countries selected by the board as eligible for bilateral compacts also being eligible for regional investments.

    For those selected as compact-eligible, concurrent authority would open the potential for a second, regionally focused, investment. In the case a regional investment would require working with a non-eligible country, MCC could consider including this country in the regional agreement, but could not spend program funding in any non-eligible country.  

  • Use of economic analysis to choose investments. In cases where the constraints to growth analysis identifies a binding constraint that would be most effectively addressed through a regional approach, potential regional investments will be systematically explored.
  • Country-driven approach. Countries would still be responsible for developing concepts to address the binding constraint and resulting problem identified through the initial analysis.  In regional investments, however, there would be several partners working on the same problem simultaneously, requiring an elevated level of diplomacy and negotiation on MCC’s part to ensure projects meet criteria while having necessary commitment from all partner countries.
  • Quantifying, tracking and transparently sharing program results. Concept papers for regional investments would still need to include preliminary economic rates of return (ERRs) showing returns above MCC’s hurdle rate, strong program logics that meet criteria for evaluation, five-year timeline feasibility, manageable environmental and social risks, policy/institutional issues, private sector engagement, and sustainability.

    MCC will have investments independently evaluated, as well as complete close-out ERRs.  Additionally, MCC will develop and implement post compact monitoring and evaluation plans. Consistent with current practice, MCC will publically share the information it learns.

  • Commitment to suspend or terminate investments. MCC recognizes that one of the risks inherent in regional investments is that one or more of the countries involved in the partnership may not perform well or may suffer governance declines inconsistent with continued MCC engagement.

MCC expects that regional investments will involve good performance by all partners and achieve the expected economic returns. Otherwise, MCC would have pursued bilateral investments. Given this, unacceptably poor performance by one country could lead to the suspension or termination of the entire investment.

Private Sector Partnerships

MCC seeks to leverage the U.S. and international private sector to increase the flow of capital and bankable public-private partnerships that can be financed by the private sector as part of standard MCC compacts. This incorporates efforts to deepen U.S. businesses involvement in partner country programs through procurement promotion sessions.

Given the limits on public budgets in MCC partner countries, as well as on MCC’s resources, pursuing leveraging opportunities is a key element of MCC’s operational strategy. During the first ten years of its operations, MCC established a comprehensive private sector consultation mechanism to ensure that its investments and associated reforms help establish a policy and institutional environment conducive to private investment. This approach has allowed MCC to help partner countries improve the environment for private investments.

The next stage of collaboration with the private sector is now focused on preparing bankable public-private partnerships that provide business opportunities for the private sector, support MCC compact objectives, and enable MCC partner countries to realize the value of policy reforms more immediately and directly by attracting private investment in MCC-supported projects.

MCC partners with the private sector on an operational level in the context of specific MCC compacts as follows: 

  • Ghana. MCC is funding the public infrastructure that is necessary to make private sector-financed power generation projects viable. It is using its expertise, leverage, and relationship with the government to help Ghana implement the critically needed policy reforms  to make the sector in general, and the privately financed projects in particular, financially and operationally sustainable and viable.
  • Jordan. Jordan used the MCC compact to fund the “public” part of a public-private partnership wherein the private sector provided the equity and arranged the debt. The resulting PPP, expected to be operational in FY 2015, will allow the Government of Jordan to address 70 percent of the country’s wastewater treatment needs. Private sector involvement has led to cutting-edge, efficient, and environmentally sound engineering that will allow the plant itself to produce 75 percent of the energy it needs and operate through clean biogas and hydroelectric power.
  • Indonesia. With the amount to be determined through a competitive, market-based process, MCC-funding will help make a renewable power project viable. Private sponsors will provide the equity and arrange the debt required to finance the proposed projects.
  • El Salvador.  MCC is using its expertise, leverage, and relationship with the Government of El Salvador to fund and implement necessary policy reforms that directly support the viability of pilot PPP projects.   

Private Sector Outreach

MCC is actively undertaking programs to increase the involvement of U.S. companies in partner country programs. In the next two years, MCC plans to hold at least eight procurement promotion sessions with U.S. companies to promote compact contracting opportunities.  These sessions will inform U.S. companies of MCC’s compact activities and planned contracts to increase awareness of procurement opportunities. 

MCC will also develop five country-focused trade and investment prospectuses, which describe investment opportunities in the sectors funded by the compact and will be disseminated to U.S. companies.  MCC plans to work with the Department of Commerce and other U.S. Government agencies to lead its first-ever investment mission focused on energy in Africa to introduce U.S. businesses to the opportunities for investing in and around compacts.  This mission will create a blueprint for MCC to pursue future investment missions to other regions and raise U.S. business awareness of MCC compacts and country partners.