|(in millions of $)||FY 2017 Enacted||FY 2018 CR Rate Annualized||FY 2019 Request|
MCC is requesting $27 million for threshold program assistance. MCC’s threshold program has proven to be an effective tool to incentivize and implement positive policy, regulatory, and institutional reforms in candidate countries and selected partner countries, and the Administration may choose to make greater use of the threshold program in future fiscal years, requiring resources for new programs.
MCC’s threshold program assists promising candidate countries to become compact eligible by offering them the opportunity to demonstrate their commitment to just and democratic governance, economic freedom, and investments in their people. By advancing policy reforms and strengthening institutions to address the most binding constraints to economic growth, threshold programs complement the “MCC Effect” created by the scorecard and allow MCC to assess the opportunity for an impactful and cost-effective partnership before committing to a larger compact. MCC uses the same rigorous, evidence-based approach in threshold programs as it does in compacts, leading to high-quality programs that maximize potential systemic impact and lay the foundation for larger investments.
Threshold programs help countries to reduce constraints to faster economic growth, increase transparency and accountability, and provide MCC critical information about their political will and capacity to undertake the types of reforms that would have the greatest impact in compacts. Current programs are:
- supporting greater budget transparency and reducing opportunities for corruption in public procurement in Honduras;
- mobilizing customs and tax revenues, and improving secondary education in Guatemala;
- creating the foundation for more effective and financially sustainable provision of critical water and electricity services in Sierra Leone; and
- fostering the use of data for more transparent and accountable governance in Kosovo.
Countries with threshold programs are not guaranteed compact eligibility. However, successful implementation of a threshold program yields significant advantages for a potential future compact. For example, a partner country will likely have enhanced its ability to design and implement investments that will generate the greatest results and have a head start on the work necessary to design a high-impact compact. Even if a country does not become compact eligible, threshold programs can help create the conditions for additional investment from the private sector or by other donors. The programs also help governments to mobilize domestic resources, spend their budgets more transparently, deliver services more efficiently, and ultimately help countries finance their own development.
Threshold Programs in Development
Selected by MCC’s Board to develop a threshold program in December 2015, Togo has shown improvement on the MCC scorecard in recent years. In FY 2014, Togo passed only 5 of 20 indicators. Togo passed 12 of 20 indicators in FY 2018, including the “hard hurdle” Control of Corruption indicator. The Government of Togo has worked closely with MCC to conduct a constraints analysis and developed an ambitious program to address critical constraints in its information and communications technology (ICT) and land sectors. To address the constraint of poor ICT services, the proposed program would improve access to high quality and affordable ICT services to Togolese citizens by encouraging private sector investments in the ICT sector and developing an independent regulatory regime. In the land sector, the proposed program would expand access to formalized land through the recognition and protection of legitimate land rights in order to accelerate agricultural productivity.
The proposed $35 million Togo threshold program presents the government with a unique opportunity to undertake major reforms in challenging and politically sensitive areas. Promoting competition, encouraging private sector investment, and expanding access in the ICT sector would be a positive step towards Togo becoming a more open and democratic society and fostering a market-oriented economy. Both the ICT and land projects will also challenge deeply rooted sources of corruption. Demonstrated progress on the threshold program would be an important signal of whether Togo would be a good partner for a potential compact in the future.
In December 2017, MCC’s Board selected the Gambia as eligible for threshold program assistance. The selection of the Gambia will give MCC the opportunity to engage with the new government on needed reforms as the country continues its democratic transition. The Gambia is an important partner in West Africa, where MCC already has a strong presence.
The additional funding request for FY 2019 will support programs with new countries that may be selected by the Board. With an average program size of approximately $34 million, the additional funding requested would allow MCC to begin development with an additional country as promising candidates emerge in the annual selection process.
Current Threshold Programs
MCC and the Government of Honduras signed a $16 million threshold program agreement in August 2013 to enhance the transparency and efficiency of public financial management, procurement, audit, and oversight of public-private partnerships. In 2017, the government launched a procurement certification program aimed at improving the transparency, accountability, and quality of public procurement by building the capacity of civil servants and requiring that all procurements above a threshold be managed by certified professionals. The program is scheduled to be completed in 2018.
MCC and the Government of Guatemala are partnering to implement a $28 million threshold program. Signed in April 2015, the program is designed to improve the quality of secondary education. In order to increase government spending in social services like education, MCC is also working with Guatemala to mobilize financial resources through reforms in customs and tax administration and by attracting private capital and structuring public-private partnerships for infrastructure.
In November 2015, MCC and the Republic of Sierra Leone signed a $44 million threshold program agreement to support policy reforms and improved governance in the water and electricity sectors. By establishing independent regulation, strengthening key institutions, and increasing transparency and accountability, the program will create a foundation for delivery of financially sustainable water and electricity services to the people of Sierra Leone, and limit opportunities for corruption in service delivery.
In September 2017, MCC and the Government of Kosovo signed a $49 million threshold program to implement policy and institutional reforms in two areas critical to economic growth and poverty reduction. To address the problem of demand outstripping the supply of electricity and the high cost of heating, the program will support the government’s efforts to encourage investments in energy efficiency and to promote the adoption of cleaner and cheaper sources of heating. The program will also explore innovative ways to catalyze private sector financing for independent power producers to bring additional energy supply online. To address concerns regarding rule of law and control of corruption in the country, the program seeks to foster a data-driven approach to increase transparency and accountability in key areas including the judiciary and environmental protection.