Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2021 | February 2020
|(in millions of $)||FY 2019
MCC is requesting $27 million for threshold program assistance to countries that may be selected by the Board of Directors in December 2020. MCC’s threshold program has proven to be an effective tool to incentivize improved performance on MCC’s eligibility criteria in MCC candidate countries and to support positive policy and institutional reforms to address binding constraints to economic growth in selected partner countries.MCC’s request for FY 2021, together with enacted funding from prior years, would support any new countries selected by the Board in December 2020 as well as threshold programs under development, including Ethiopia, Kenya, and the Solomon Islands.
MCC’s threshold program assists candidate countries to become compact eligible by motivating them 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 incentive for policy reform created by the MCC scorecard and allowMCCto assess the opportunity for an impactful and cost-effective partnership before committing to a larger compact. The potential for a future compact essentially functions as a “carrot” to incentivize performance on a threshold program. The MCC model is designed to leverage off incentives.
As in compacts, MCC uses a rigorous, evidence-based approach in threshold programs, leading to high-quality programs that maximize potential systemic impact and lay the foundation for potential larger compacts. Threshold programs help countries to reduce constraints to faster economic growth, increase transparency and accountability, and provide MCC critical information about the countries’ political will and capacity to undertake the types of reforms that would have the greatest impact in compacts. A government’s level of engagement in a threshold program is one of the single best indicators as to how successful a future compact may be. Current threshold programs are: in Guatemala, improving secondary education; in Sierra Leone, creating the foundation for more effective and financially sustainable provision of critical water and electricity services; in Kosovo, fostering the use of data for more transparent and accountable governance; and in Togo, catalyzing private sector participation in the telecommunications sector.
A 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 projects that will generate the greatest results and have a head start on the work necessary to design a high-impact compact. However, countries with threshold programs are not guaranteed compact eligibility. 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. Threshold 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.
New and Developing Threshold Programs
MCC selected Ethiopia for participation in the threshold program in December 2018, recognizing the ongoing efforts of the government to reform democratic institutions and encourage greater private sector participation in the economy. Working closely with USAID, the Harvard Center for International Development, and the government,MCCidentified the shortage of foreign exchange as the primary binding constraint to sustaining economic growth.MCCexpects to prioritize reforms that can improve the country’s export performance and aims to complete development of the program in FY 2020.
In December 2018,MCCselected Solomon Islands as eligible for threshold program assistance. The constraints analysis identified the inability to access land and ineffective natural resource management as the two most binding constraints to economic growth. MCC is conducting further analysis with the goal of approving a program by the end of 2020.
The Board’s December 2019 selection of Kenya for a threshold program will give MCC the opportunity to engage with the country on policy and institutional reforms. Kenya is an important partner to the United States in East Africa, a region where MCC’s presence is growing. The Government of Kenya is highly motivated to perform on its threshold program and has expressed a clear desire for a compact. MCC has communicated that the threshold program needs immediate and high-level focus, and the Government has been responsive to date, starting with the signing of a Development Objective Assistance Agreement (DOAG) with USAID. The prospect of an MCC threshold program was key to incentivizing Kenya’s committment to signing the DOAG and to paying the United States arrears, an agreement which had been stalled for many years.
MCC’s Board of Directors selected The Gambia for the threshold program in December 2017, creating the opportunity for MCC to engage with the country on needed reforms as its transition to democracy continues. The government and MCC have worked constructively together to develop a policy and institutional reform program focused on The Gambia’s power sector. However, in June 2019, The Gambia was downgraded to Tier 3 in the U.S. Department of State’s annual Trafficking in Persons (TIP) Report. As a result, MCC has paused program development and will not seek Board approval to resume until The Gambia takes sufficient measures to combat TIP and is removed from Tier 3 status.