Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2021 | February 2020

Compact Assistance

(in millions of $) FY 2019
Enacted
FY 2020
Enacted
FY 2021
Request
Total Appropriation/Request 905.0 905.0 800.0
    Total Compact Assistance 637.4 634.5 543.0

For FY 2021, MCC requests $543 million to support its first regional integration compacts, with Benin and Niger, as well as Malawi’s second compact. MCC will also continue development of compacts for Indonesia, Kosovo, Timor-Leste, Lesotho, Mozambique, Burkina Faso, and Tunisia.

The chart below provides updates for all of the compacts currently in development, including estimated compact sizes:

Countries and Appropriations Used (in millions of $) Prior Years FY 2020 FY 2021 Total
Malawi  6  22 243 270
Regional 300 300
Sri Lanka 480 480
Burkina Faso 411 39 450
Tunisia 271 139 409
Kosovo 100 24 124
Lesotho 149 162 310
Timor-Leste  41 250 291
Indonesia TBD
Mozambique TBD
Total 1,457 635 543 2,634

Concurrent Compacts for Regional Integration

In FY 2021, MCC will continue to focus on best practices for operationalizing its authority for concurrent compacts for regional integration. Most recently, development of the previously proposed Ghana-Burkina Faso regional energy project ceased as a result of the Government of Ghana’s decision to terminate the concession agreement between the Electric Company of Ghana and private operator Power Distribution Services Ghana. MCC’s regional team has now shifted its focus and efforts to developing a regional project in Benin and Niger along the Cotonou–Niamey transport corridor. This potential project is still in the early stages of development and will likely require 18 to 24 months, or longer, to fully develop. MCC has begun an assessment of underlying road studies and traffic data to determine which infrastructure segments are potentially viable. Compacts for regional integration will need to be accompanied by reforms to address the institutional and market constraints that raise the financial and time costs associated with energy and transport. Fully understanding these multifaceted and complex issues will be time-consuming and challenging. The Benin-Niger regional transport project remains contingent on partner countries’ adherence to MCC eligibility criteria and strong performance on their domestic compacts already in implementation. MCC remains open to considering additional projects in the energy and transport sectors.

Updates for Compacts Currently in Development

Malawi

In December 2018, MCC’s Board of Directors selected Malawi to develop a second compact. Over the following months, the government worked closely with MCC to identify three binding constraints to the country’s economic growth. These include an unstable macroeconomic environment that is characterized by high interest rates, an overvalued currency, and high inflation; poor linkages between rural farms and markets, primarily as the result of the high cost of road freight transport services; and difficulties with access to land for investment due to unclear land rights and mismanagement of the estate sector. The government has developed a set of concept notes to address the root causes underlying the land and rural market linkages binding constraints. MCC expects to conclude development of the compact program in FY 2021.

Results from Malawi’s 2013 Compact

MCC’s initial compact program with Malawi came to an end in September 2018. The $350.7 million compact program set the foundation for major improvements in the performance of the country’s power sector and raised the potential for private sector participation. Through the compact, the government worked with eleven nongovernmental organizations to pilot activities that will improve natural resource management along the Shire River, which supplies the country’s hydropower plants. The government also increased the generation capacity of its primary hydropower plant; installed its first high-voltage power line; and refurbished, upgraded, and modernized other portions of its power grid. With support from General Electric, the government also introduced an automated management system that allows Malawi to monitor its grid in real time. With substantial technical assistance provided through the compact, the government adjusted electricity tariffs and amended power sector laws to allow private investment and undertook its first-ever competitive solicitation for independent power producers.

Indonesia

In December 2018, MCC’s Board of Directors selected Indonesia to develop a second compact. The government and MCC finalized a constraints analysis in October 2019, identifying the country’s binding constraints as lack of export-oriented competitiveness, domestic productivity and innovation, and costly and underdeveloped financial intermediation. The analysis also showed that gender inequality is a key disparity that negatively impacts economic growth. MCC expects to conclude the development of the compact program in early 2022.

Results from Indonesia’s 2011 Compact

MCC’s initial compact in Indonesia came to an end in April 2018. During the five-year compact program, the $600 million compact supported improvements in health and nutrition, modernization of public procurement functions, and sustainable energy and resource management. The nutrition project trained 17,500 providers of prenatal health services, distributed medical supplies, and conducted over 4,200 community sanitation behavior change meetings across 64 districts in an effort to combat low birth weight, childhood stunting, and childhood malnourishment. The procurement modernization project trained 1,000 procurement professionals (24 percent of them women) to apply modern procurement and management skills in national and local governments to increase procurement quality and achieve substantial savings. The energy project established a market-responsive Green Prosperity Facility that supported 66 projects for renewable energy, peatland restoration, sustainable agriculture, and improved natural resource management, and trained over 127,000 farmers in climate-smart agriculture, natural resource management, social forestry, and renewable energy. The implementation of the compact program sought to reinforce community ownership and innovation through flexible, scalable approaches.

Kosovo

In December 2018, MCC’s Board of Directors selected Kosovo to develop a compact. Since that time, the government has worked closely with MCC to update the constraints analysis it initially conducted during the development of its threshold program. The analysis identified two binding constraints to Kosovo’s economic growth, namely the unpredictable energy supply deficits that result from the country’s old and unreliable generation infrastructure and the excess demand for electricity that reflects insufficient investment in energy efficiency.

The government recently proposed projects that involve the development of Kosovo’s natural gas sector, the creation of energy reserves for power system balancing, the improvement of electricity distribution, and energy sector strengthening through policy and institutional reforms. With MCC’s assistance, the government will shortly initiate full feasibility studies to assess the viability of these potential projects. MCC expects to conclude the development of the compact program by the end of 2020.

Lesotho

In December 2017, MCC’s Board of Directors selected Lesotho to continue the development of a compact, following a two-year hiatus in which the Board of Directors monitored the country’s response to a series of governance and political stability concerns. MCC is working with the government on a program to improve planning and execution of capital investments in irrigation, agriculture and land, and to strengthen the health sector. MCC expects to conclude the development of the compact program in 2020.

Results from Lesotho’s 2007 Compact

MCC’s initial compact program in Lesotho ended in September 2013. The $362.5 million compact program supported the work of the President’s Emergency Plan for AIDS Relief (PEPFAR) to mitigate the impacts of poor maternal health, HIV/AIDS, tuberculosis and other diseases, and partially funded the construction of water delivery systems associated with the Metolong Dam, which provides water to the capital city, Maseru. Through the compact, the government constructed over 29,000 latrines and 175 water systems, and after the end of the compact, the government completed another 75 water systems with its own funds. MCC expects approximately one million people to benefit from the compact.

Timor-Leste

In December 2017, MCC’s Board of Directors selected Timor-Leste to develop a compact program, building on its initial work to develop a threshold program over the previous year. Based on the results of the completed constraints analysis, the government set about identifying sectors and specific projects for further consideration. In September 2019, the government submitted two project proposals to address the country’s binding constraint in human capital. One proposed project aims to reduce disease by strengthening water, sanitation, and drainage infrastructure. The other proposed project aims to improve the quality of secondary education. MCC expects to conclude the development of the compact program in late 2020.

Mozambique

The MCC Board selected Mozambique as eligible to develop a second compact in December 2019, based on the strength of the partnership under the first compact and Mozambique’s recent strong scorecard performance. MCC and the Government of Mozambique have begun development of the second compact, which is likely to have a strong private sector/de-risking market approach, and the Government has shown strong early engagement.

Results from Mozambique’s 2007 Compact

In 2013 MCC completed a $506.9 million compact program with Mozambique to upgrade water and sanitation systems, rehabilitate roads used for commercial traffic, formalize land titles, and help farmers improve coconut crop management and yields, primarily in the country’s northern provinces. The water and sanitation project constructed 614 water points, expanded municipal water systems, and extended drainage. Under the roads project, the Government rehabilitated 253 km of roads. The land tenure project incorporated 205,005 parcels into the land system, and trained 1,516 local stakeholders in land tenure, land use mapping, and public outreach. Finally, the farmer support project cleared 600,000 diseased and dead trees, and trained 15,607 farmers in coconut disease surveillance. Overall, the compact sought to increase the productive capacity in Mozambique by improving to water and sanitation services, increasing access to productive resources and markets, establishing more secure access to land, and raising the productivity of farms.

Sri Lanka

In April 2019, MCC’s Board of Directors approved a $480 million compact with the Government of Sri Lanka to improve transportation and logistics infrastructure and land administration. The proposed program includes a transport project to reduce traffic congestion in the capital city and economic center of the country by upgrading eight major road corridors, improving public bus service, and rehabilitating a rural highway network to better connect lagging interior regions of the country with ports and markets. It also includes a land project that supports existing government efforts to increase the availability of land data and strengthen land tenure security, enhancing the use of land as a productive economic asset by smallholders, women, and the private sector. Sri Lanka’s Cabinet of Ministers approved the compact in October 2019, shortly before presidential elections. There has subsequently been a lengthy delay to signing the compact and a change in government in Sri Lanka. Before MCC will proceed to sign the compact, the new Government of Sri Lanka will need to make a clear and public expression of support for the partnership with MCC and demonstrate a commitment to broader engagement with the United States Government.

Burkina Faso

In December 2016, MCC’s Board of Directors selected Burkina Faso to develop a second compact program. MCC is currently refining the scope and budget for the proposed program, which will address the country’s high cost and lack of reliability of power. The majority of compact activities will focus on the rehabilitation and construction of energy transmission loops in and around Ouagadougou and Bobo-Dioulasso, key legal and regulatory reforms, as well as institutional capacity building. MCC expects to make a final program approval decision in winter 2020, hold compact negotiations in spring 2020, and seek MCC Board approval of the compact in June 2020. MCC’s decision not to pursue the regional transmission line between Ghana and Burkina Faso will not affect the scope of Burkina Faso’s domestic compact.

Results of Burkina Faso’s 2009 Compact

MCC’s initial compact with Burkina Faso came to an end in July 2014. The $480.9 million compact program aimed to address challenges in land reform, agriculture, transportation, and education. Through the land reform project, the government trained 8,700 local officials in lands rights and processed more than 13,000 land possession certificates, well over the target of 6,000 certificates. Through the agriculture project, the government constructed 2,240 hectares of irrigated farmland and rehabilitated a dam to protect new farms from catastrophic flooding. Through the road project, the government paved or upgraded 525 km of roads and developed new road maintenance planning tools to improve management of the country’s road network. Through the education project, the government built on the success of MCC’s earlier threshold program by building 396 new classrooms and increasing access to girls’ participation in primary school. Throughout implementation, the government demonstrated commitment and high-level engagement, meeting all conditions precedent, including requirements for significant institutional reforms, substantial new legislation, and 52 new implementing decrees and regulations.

Tunisia

In December 2016, MCC’s Board of Directors selected Tunisia to develop a compact. The Government of Tunisia proposed two projects to address binding constraints to the country’s economic growth. A business climate project aims to modernize the environment for doing business by reducing barriers to investment and facilitating trade and logistics, and may include regulatory and policy reform, digital government, support for small and medium-sized enterprises and potential improvements in port infrastructure and an industrial zone. A water scarcity project aims to manage water demand and promote water efficiency in agriculture, particularly in the interior regions of the country, by strengthening water resource management, training farmers in sustainable production, and rehabilitating water supply infrastructure. MCC expects to conclude the development of the compact program in 2020.

Compact Development Process Overview

Compact Portfolio Status Report

In FY 2021, MCC will be working with countries to develop 10 compacts for implementation. Program and sector data for compacts already in implementation can be found on our website, www.mcc.gov.

Graphic illustrating MCC's portfolio of country compacts from eligibility through implementation from FY 2019 to FY 2021.