|(in millions of $)||FY 2020||FY 2021||FY 2022|
MCC is requesting $31 million in FY 2022 for threshold programs with new countries to be selected by MCC’s Board of Directors in December 2021. MCC is currently developing threshold programs with Solomon Islands, The Gambia, Ethiopia, Kenya, and Kiribati.
MCC threshold programs seek to incentivize improved performance on MCC’s eligibility criteria and to support positive policy and institutional reforms to address binding constraints to economic growth in selected candidate countries. The Board’s selection of countries for new threshold programs or the transition of existing threshold programs under development to compact assistance may lead to future shifting of funds to/from this budget line item.
MCC threshold programs assist candidate countries to become compact eligible by incentivizing them to demonstrate their commitment to just and democratic governance, economic freedom, and investments in their people. By advancing policy and institutional reforms to address the most binding constraints to economic growth in a country, threshold programs complement the incentive created by the scorecard (referred to as the “MCC Effect”) and allow MCC to assess the opportunity for an impactful and cost-effective partnership before committing to a larger investment through a compact. MCC uses the same rigorous, evidence-based approach in threshold programs as it does in compacts, leading to high-quality investments that have the potential for creating systemic impacts and lay the foundation for larger investments.
Threshold programs help countries to reduce constraints to faster economic growth, increase transparency and accountability in the provision of public services, and provide MCC critical information about a government’s political will and capacity to undertake the types of reforms that would have the greatest impact in compacts. The recently completed threshold program with Sierra Leone has helped to create the foundation for more effective and financially sustainable provision of clean water and reliable electricity, while incentivizing the country to strengthen its overall policy performance and become compact eligible. Ongoing programs are improving secondary education in Guatemala and fostering the use of data for more transparent and accountable governance in Kosovo. The Togo threshold program, which entered into force in November 2020, will support reforms to increase private sector participation in the telecommunications sector and to improve land tenure.
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 development partners. 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.
Developing and Future Threshold Programs
In December 2018, MCC’s Board of Directors selected Solomon Islands for threshold program assistance. Despite travel limitations associated with the COVID-19 pandemic, MCC was able to successfully complete program development. In December 2020, the MCC Board of Directors approved a $23 million threshold program that would facilitate private investment for increased tourism and generate more reliable and sustainable benefits from the country’s forest resources. Pending the conclusion of negotiations and signing of a threshold program grant agreement, MCC expects implementation to begin in early FY 2022.
In FY 2018, MCC’s Board of Directors selected The Gambia for threshold program assistance. Program development was paused in FY 2020 due to The Gambia being placed on Tier 3 of the U.S. Department of State’s Trafficking in Persons Report. The Gambia was moved to Tier 2 Watch List, from Tier 3, in FY 2021 and MCC has re-started program development with the Government. MCC plans to complete the design of an energy sector reform program and request Board approval and sign of a grant agreement in FY 2022.
Since early 2019, MCC and the Government of Ethiopia have worked productively to develop a $53 million program aimed at enhancing Ethiopia’s trade capabilities and diversifying and growing its exports. MCC expects all partner countries to demonstrate an ongoing commitment to MCC’s eligibility criteria, which include the protection of human rights, civil liberties, rule of law, and freedom of information, among other items. MCC is monitoring the ongoing humanitarian and human rights crisis in the Tigray region of Ethiopia, coordinating with USG counterparts on these issues, and will determine if and when the program is presented to the MCC Board.
MCC’s Board of Directors selected Kenya as eligible to develop a second threshold program in December 2019. MCC and the Government of Kenya have completed the constraints analysis, which identified lack of connectivity in urban areas and crowding out of private sector financing as the binding constraints to economic growth. The MCC and government teams are analyzing the root causes of the urban connectivity constraint to develop project concepts. MCC expects to finish program development and sign a threshold grant agreement in FY 2022.
The Pacific Islands country of Kiribati was selected for a potential threshold program in December 2020. MCC is in the early stages of a constraints analysis and is coordinating closely with other bilateral and multilateral development partners in the region.
The funding request for FY 2022 will support programs with countries that may be selected by MCC’s Board of Directors in December 2021. The average program size for threshold programs is approximately $30 million, and the requested funding would allow MCC to begin development of threshold programs with new countries should promising candidates emerge in the annual selection process.