Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2018 | May 2017

Compacts in Development

(in millions of $) FY 2016 Enacted FY 2017 Enacted FY 2018 Request
Total Appropriation/Request 901.0 905.0 800.0
Compact Assistance 667.0 671.2 577.3
Section 605 554.2
Section 609(g) Compact Development Funding (CDF) 23.1

*CDF amounts are estimated using MCC‘s recent historical average of approximately 4 percent of total compact assistance.

In order to support U.S. global development priorities and maximize the investments available in its candidate pool of poor but relatively well-governed countries, MCC plans to invest $577 million of the FY 2018 request in new compact programs with Mongolia, Senegal, and Sri Lanka.

The funding projections are based on multiple factors, including the size of the countries’ populations and economies, incidences of poverty, absorptive capacities, and need.  If fully funded, these investments could significantly advance economic growth and poverty reduction in these important economic and geopolitical partners. As the information provided later in this section details, MCC is actively working with other countries to develop compact programs, including Burkina Faso and Tunisia.

  • Mongolia shares the entirety of its southern border with China and its northern border with Russia but represents a strong democratic presence in the region. While the country struggles with limited institutional capacity, Mongolia passed MCC’s scorecard on the basis of its strong policy performance and was selected for FY 2015 as eligible to develop a second compact. Mongolia’s first compact, successfully completed in FY 2013, invested $285 million in multiple sectors. MCC and the Government of Mongolia have agreed to focus the second compact on water supply in the capital city of Ulaanbaatar and have identified potential projects to increase bulk supply and improve service delivery that will require at least $345 million in investments.
  • Senegal is a democratic success story in West Africa with stable institutions and successive free, fair elections that led to a peaceful transition of power in 2012. The country’s selection in FY 2016 to develop a second compact reflects its strong policy performance, especially in the areas of battling corruption and protecting political rights. Senegal’s first compact, completed in FY 2015, focused on road rehabilitation and water resource management in isolated agricultural areas, aligning with the country’s long-term objective to enhance economic growth and food security. MCC and the Senegalese are building on these successes through a compact focused on the energy sector. Challenges in this sector continue to impede private agricultural and commercial development. In FY 2017, the Government of Senegal proposed projects that would invest $450 million in energy infrastructure, institutional strengthening, upgrading power transmission and distribution, and improved electricity access in rural areas.
  • Sri Lanka marked the end of a significant internal conflict in 2009 and its successful elections in 2015 and improved performance on MCC scorecard’s indicators for political rights and civil liberties enabled the country to graduate from threshold program eligibility to compact eligibility in FY 2017. Despite its progress, Sri Lanka faces continued challenges with post-conflict reconstruction and reconciliation as well as a rapidly urbanizing population that has placed growing strains on its infrastructure. The Government of Sri Lanka has demonstrated a strong commitment to its partnership with MCC by dedicating significant time and effort on the development of its threshold program. Building on this momentum, and with continued high-level government engagement, MCC anticipates accelerated compact development to invest the requested $440 million in high-return projects to address the country’s constraints to growth needs in regional transportation and access to land for commercial and industrial purposes.

The chart below and the subsequent pages provide updates for all of the compacts currently in development, including estimated Board consideration timing and compact sizes. Program and sector data for countries already in implementation can be found online on our public website at www.mcc.gov.

Countries and Appropriations Used (in millions of $) Prior Years FY 2017 FY 2018 Total
Board Consideration in FY 2017:
Nepal 427 71 498
Côte d’Ivoire 383 167 550
Board Consideration in FY 2018:
Mongolia 94 166 85 345
Senegal 131 263 56 450
Sri Lanka 4 436 440
Board Consideration in Future Fiscal Years:
Burkina Faso TBD
Lesotho TBD
Philippines TBD
Tunisia TBD
Total 671 577

Compacts in Development as of FY 2017 Q2

FY 2016 FY 2017 FY 2018 FY 2019
Country Eligibility FY Projected Signing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Nepal 2015 10/2017 Project Project Development Neg. Implementation Prep Implementation
Mongolia 2015 4/2018 Project Definition Project Development Neg. Implementation Prep
Philippines 2015 1/2019 Project Definition Project Development
Côte d’Ivoire 2016 10/2017 Elig. Project Definition Project Development Neg. Implementation Prep Implementation
Senegal 2016 10/2018 Elig. Preliminary Analysis Project Definition Project Development Neg. Implementation Prep
Sri Lanka 2017 10/2018 Elig. Project Definition Project Development Neg. Implementation Prep
Burkina Faso 2017 7/2019 Elig. Preliminary Analysis Project Definition Project Development
Tunisia 2017 7/2019 Elig. Preliminary Analysis Project Definition Project Development
Lesotho 2014 TBD MCC’s Board deferred a vote on Lesotho’s continued eligibility in both December 2015 and December 2016 due to ongoing concerns over rule of law and accountability in Lesotho. The Government of Lesotho is working with the Southern Africa Development Community to address the issues driving these concerns, and MCC continues to closely watch their progress.

Burkina Faso

With new leadership and an ambitious reform agenda focused on poverty and improved performance on the MCC scorecard, Burkina Faso exemplifies the higher bar that MCC has for second compact countries. Its continued policy improvement is clear: despite being one of the poorest countries in Africa, Burkina Faso passed 13 of the 20 MCC scorecard indicators, has shown strong improvement on democratic rights, and has a consistently strong score on the Control of Corruption indicator. MCC’s Board of Directors selected Burkina Faso in  FY 2017 to develop a second compact and a senior MCC team visited Ouagadougou in early February to launch compact development. MCC’s first technical mission, which included consultations with government, civil society, private sector and donor stakeholders, was successfully completed in early May. The Government of Burkina Faso selected a national coordinator and lead economist in April, and should complete the selection of the remaining team members in. Work is underway to complete the constraints to growth analysis by September 2017.

Results of Burkina Faso’s 2009 Compact

MCC’s $480 million compact with Burkina Faso, which ended in July 2014, was characterized by Burkina Faso’s commitment and high-level engagement. All conditions precedent were met; notably many of these required significant institutional reforms and others required adoption of major new laws by the National Assembly and issuance of 52 implementing decrees and regulations. The compact consisted of projects in the sectors of land reform, agriculture, transportation, and education. The compact successfully trained 8,700 local officials in lands rights and over 13,000 land possession certificates were in process by the end of the compact—well over the original target of 6,000. The multifaceted agriculture project constructed 2,240 hectares of irrigated farmland and rehabilitated a dam, protecting investments from catastrophic flooding. MCC funded the paving, upgrade or periodic maintenance of 525 kilometers of roads by the end of the compact term and invested in the development of a new road maintenance planning tool to facilitate future planning and continued management of the country’s road network. The BRIGHT II Schools project built on the education component in the earlier MCC threshold program by investing in the construction of 396 additional classrooms, increasing access to girl-friendly school environments and thereby maintaining girls’ participation in primary school.

Côte d’Ivoire

Estimated $550 million

After years of working to strengthen their policy performance on MCC’s indicator scorecard through reforms and data updates, Côte D’Ivoire went from passing just five indicators in FY 2013   to passing 14 indicators in FY 2017. MCC has worked with Côte d’Ivoire since FY 2016 to develop a compact program that builds off the economic analysis work already completed for the country’s threshold program, including a constraints to growth analysis and sector diagnostics. Two projects have emerged to address binding constraints in the skills development and transportation sectors. The first project is being designed to improve the employability of Ivoirians and the productivity of the private sector by improving the quality of and access to basic and technical skills in response to private sector demand.  The second project will work to increase the competitiveness of Abidjan as the country’s growth pole through road rehabilitation investments to improve the mobility of goods and people along a central corridor in the heart of the city and near the Port of Abidjan. The compact is expected to be presented to MCC’s Board for consideration in late FY 2017.

Lesotho

MCC’s Board deferred a vote on Lesotho’s continued eligibility in both December 2015 and December 2016 due to ongoing concerns over rule of law and accountability. The Government of Lesotho is working with the Southern Africa Development Community to address the issues driving these concerns, and MCC continues to closely watch progress.

Mongolia

Estimated $345 million

MCC’s Board of Directors selected Mongolia for compact assistance in FY 2015 and the Government of Mongolia quickly established a National Secretariat for Compact Development, which completed a constraints to growth analysis that identified costly access to water and sanitation in productive sectors and poor communities as a binding constraint to economic growth. MCC and Mongolia have agreed on a water supply project for Ulaanbaatar as the compact program’s principal focus and identified a set of specific investment activities that will increase bulk water supply and improve service delivery in the water sector, including groundwater extraction, industrial water reuse, and institutional and regulatory policy strengthening. MCC is currently assessing these activities for potential inclusion in a compact and expects to present a compact program to MCC’s Board by mid-FY 2018.

Results of Mongolia’s 2008 Compact

Mongolia completed a $285 million compact program in September 2013. The multi-faceted program included investments in land tenure, health, vocational education, transportation, and energy. The results included improving property rights for small herders by formalizing over 19,000 land titles, establishing the country’s first state-of-the-art medical facility for stroke and heart attack patients, modernizing the vocational education system, constructing a paved 176 km all-weather road to access key trading markets, and the sale of over 100,000 fuel-efficient stoves to reduce air pollution in Ulaanbaatar.

Nepal

Estimated $498 million

While MCC’s Board of Directors selected Nepal for compact assistance in FY 2015, MCC and the Government of Nepal had been engaging on critical policy and institutional reforms since the country was selected in FY 2012 to develop a threshold program. At that time, MCC and Nepal worked together to complete a constraints to growth analysis that identified the inadequate supply of electricity and the high cost of transportation for goods and services as binding constraints to economic growth. Despite challenges associated with the devastating earthquakes in April and May 2015 and blockage of the Indian-Nepal border that caused severe economic and social hardships, Nepal established a compact development team that worked in a constrained operating environment. The Nepali team submitted proposals focused on large-scale infrastructure investments in the power sector, with a smaller project focused on rehabilitation and maintenance along critical road transport corridors. Having completed feasibility studies and preliminary environmental assessments for the power sector projects, MCC is working closely with the government in considering various options for the final compact program. MCC expects to present Nepal’s compact proposal to the MCC Board before the end of FY 2017.

Philippines

The MCC’s Board of Directors selected the Philippines as eligible for compact assistance in FY 2015, but, following national elections in May 2016, the Board raised concerns over issues tied to the country’s trajectory on human rights, due process, and rule of law. When the Board made country selection decisions for FY 2017, it deferred the vote on continued compact eligibility for the Philippines. While the Board continues to closely monitor the policy environment, the Government of the Philippines continues developing project proposals on agricultural competitiveness and productivity after a jointly completed a constraints to growth analysis identified four binding constraints to economic growth including 1) government coordination and implementation capacity, 2) the high costs of transport logistics, 3) the high cost of electricity, and 4) market failures in the rural economy. In FY 2016, the Philippines submitted preliminary concepts to MCC that seek to address the fourth constraint, rural market failures, with initial ideas for improving public support programs, raising agricultural productivity, and strengthening the infrastructure that allows access to markets.

Results of the Philippines’ 2010 Compact

The $434 million Philippines 2010 Compact, which concluded in May 2016, improved business processes in the Bureau of Internal Revenue, thereby nearly doubling revenue collections, reducing opportunities for corruption, and supporting increased public investment. The compact program also built over 4,000 small-scale community infrastructure projects which benefited nearly one million households, exceeding the original compact targets. In building these projects to help address communal priorities in a sustainable manner, the compact promoted participation by women. The Secondary National Roads Development Project on Samar Island rehabilitated 222 km of a national road using climate-resilient standards and with significant safety enhancements. The road has reduced transportation costs, expanded commerce, and helped to raise the incomes of the island’s people.

Senegal

Estimated $450 million

MCC’s Board of Directors selected Senegal for compact assistance in FY 2016. Senegal’s eligibility reflected the country’s strong performance on MCC’s eligibility scorecard, especially on the Control of Corruption and Democratic Rights hard hurdles, showing continuous improvement on Control of Corruption for five straight years, FY 2012 to FY 2017, moving from the 66th to the 96th percentile over that time period.  In late FY 2016, MCC and the Government of Senegal completed a constraints to growth analysis that identified the high cost of energy and a distortive business policy environment as binding constraints to economic growth and private investment in Senegal. By mid-FY 2017, MCC and Senegal agreed to focus potential investments on opportunities to reduce the high cost of energy and improve access to electricity. The government submitted concept notes proposing infrastructure improvements, policy and institutional strengthening in the energy sector, transmission and distribution modernization, and improved electricity access in rural areas. MCC expects the Senegal to submit detailed project proposals for further assessment in early FY 2018.

Results of Senegal’s 2009 Compact

The $540 million compact with Senegal was designed to boost economic growth by unlocking the country’s agricultural productivity and expanding access to markets and services through investments in roads and irrigation networks. The two primary compact projects, roads rehabilitation and irrigation and water resource management, were geographically focused in the Senegal River Valley in the north and the Casamance region in the south. The compact priorities aligned with the country’s long-term objectives of enhancing economic growth and food security. This compact program closed in September 2015 with completion of the Irrigation and Water Resource Management Project and most of the Roads Rehabilitation Project. Despite challenges in the early years of program implementation, the Government of Senegal committed the funds needed to complete remaining work on an incomplete road in the Casamance region and is actively managing sustainability efforts for all compact investments going forward.

Sri Lanka

Estimated $440 million

Sri Lanka passes the FY 2017 MCC scorecard by meeting 13 out of 20 indicators, including the hard hurdles on both Democratic Rights and Control of Corruption. In addition, MCC found Sri Lanka to be a high-capacity and committed partner during development of the threshold program in 2016. Given this strong partnership and policy performance, MCC’s Board moved Sri Lanka from a threshold program into the compact program in FY 2017. Working with MCC, the Government of Sri Lanka developed a constraints to growth analysis in November 2016 that identified binding constraints in policy uncertainty, access to land, and transport. Following Sri Lanka’s selection for compact assistance, an MCC team visited Colombo in January 2017 to launch compact development. Building on the constraints analysis, the government conducted root cause analysis of the binding constraints in March-April 2017 and submitted concept notes for MCC review shortly thereafter.

Tunisia

Tunisia strongly passes MCC’s scorecard, but continues to confront major development challenges such as significant inequality and the vulnerability of many citizens falling back into poverty, all of which undermine recent strong democratic gains. A compact with Tunisia provides MCC with a unique opportunity to partner with a high-capacity partner in a critically important region to develop an investment program and consider policy reforms that would support such investment. MCC’s Board of Directors selected Tunisia for compact assistance in FY 2017. An MCC team visited Tunis in January 2017 to launch compact development. The Government of Tunisia appointed a national coordinator, housed in the Ministry of Development, Investment and International Cooperation, to lead its compact development team. The compact development team has begun to draft an updated constraints to growth analysis, the results of which are expected in summer 2017.

Compact Development Process Overview

1. Preliminary Analysis 2. Problem Diagnosis 3. Project Definition 4. Project Development 5. Negotiation
Constraints Analysis Concept Notes Project Proposals Investment Memo Compact
Eligible Country
  • Names a National Coordinator and puts together a compact development team
  • Analyzes constraints to economic growth, opportunities for private investment, and poverty
  • Undertakes broad consultations with stakeholders
  • Expands compact development team
  • Analyzes key root causes of binding constraints
  • Defines, develops initial project ideas to address constraints
  • Submits Concept Notes
  • Defines and scopes specific projects and activities
  • Builds strong project logic for proposed compact program
  • Identifies intended beneficiaries
  • Consults stakeholders on project design
  • Submits detailed Project Proposals
  • Conducts feasibility, environmental and other studies
  • Measures expected economic impact
  • Identifies risks and mitigation measures
  • Begins establishing structures needed in implementation
  • Finalizes monitoring and evaluation
  • Negotiates legal, financial, technical terms of program
  • Creates dedicated MCA unit for implementation
MCC
  • Staffs a country team
  • Provides compact development guidance
  • Advises and assists with analyses
  • Reviews, approves Concept Notes
  • Approves concept projects for further development
  • Reviews, approves Project Proposals
  • Approves projects for full development and appraisal
  • May fund necessary preparatory studies
  • Oversees, manages procurements
  • Conducts thorough project appraisal
  • Makes final decision on projects
  • Notifies Congress of intent to negotiate
  • Defines budget and commits funding
  • Obtains approval of MCC’s Board
  • Signs agreements