Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2024 | March 2023
|(in millions of $)||FY2022 Enacted||FY2023 Enacted||FY24 Request|
|Total Compact Assistance||647.5||651.0||760.0|
|Compact Development Funding||30.0||28.0||24.0|
|Office of the Inspector General||4.5||4.5||4.5|
The Millennium Challenge Corporation (MCC) is requesting $1,073 million in discretionary funding for fiscal year (FY) 2024 to deliver on its mission to reduce poverty through sustainable, inclusive, economic growth in partner countries, while helping to create new markets for trade and investment, jobs, and opportunities for American businesses. In addition, the President’s FY 2024 budget includes—as part of a broader proposal to out-compete China globally—a $2 billion mandatory funding request for an International Infrastructure Fund, from which MCC will access at least $200 million for infrastructure. MCC’s grant financing for high-quality, sustainable infrastructure stands in contrast to predatory financing from other sources.
The global development landscape has changed dramatically in the past decade as geopolitical strife has threatened democracy, led to increases in poverty, and further constrained economic growth. As MCC approaches its 20th anniversary, its model is as critical today as it was when the agency was created in 2004. MCC is at the forefront in supporting country partners to meet these challenges through sustainable investments that promote economic growth and improve the lives and livelihoods of the most vulnerable. As a result of MCC’s model, its grant assistance is a key economic contributor to the way the United States combats growing geopolitical and social challenges facing democracies worldwide.
In 2020 and 2021, MCC and its partner countries faced a host of challenges including the unprecedented COVID-19 pandemic which set back decades of development progress. In 2022, MCC achieved major milestones across its portfolio, including compact signings with Timor-Leste ($420 million), Lesotho ($300 million), Kosovo ($202 million), and Malawi ($350 million). MCC also signed threshold program agreements with the Solomon Islands ($20 million) and The Gambia ($25 million), as well as MCC’s first concurrent regional compacts with Benin and Niger (totaling $504 million) in December during the U.S.-Africa Leaders Summit. These aggregate investments amounted to over $1.8 billion just this past year which are expected to improve the lives of more than 13 million people by strengthening energy security, connecting goods to markets, improving health and education outcomes, increasing rural incomes and fighting food insecurity, better managing natural resources, facilitating well-functioning power sectors, and driving regional integration.
The current global context is extremely challenging and strong U.S. leadership and foreign assistance is needed now more than ever in the fight against global poverty. When MCC was established nearly two decades ago, the agency budget matched its ambitious mandate to incentivize reform, democratic governance, promote economic growth, and fight poverty. For the past decade, MCC’s budgets have remained largely flat while development challenges have grown. MCC is balancing a surge in portfolio signings and funding commitments, along with increased security, supply-chain, and inflationary costs. With these rising costs combined with $615 million in rescissions over the last two years, this has significantly reduced MCC’s available balances going into FY 2024, requiring MCC to rely heavily on future funding to deliver on its compacts and meet commitments to partner countries. As a result, MCC’s ability to provide predictability and certainty to partners at key moments when program size and scope are being determined has reduced and is hampering MCC’s ability to further incentivize change (“MCC effect”). MCC requires funding increases and budget predictability to achieve more strategic and lasting impacts on the economic development and public policies of our partner countries.
With a robust portfolio, including a pipeline of strategic new programs that will be ready for approval by MCC’s Board of Directors in FY 2024, the agency is poised to expand its evidence-based, cost-effective, and values-driven model to help meet these challenges. These programs include opportunities to catalyze private sector investment, as well as substantial infrastructure investments that build on MCC’s track record of delivering complex, quality infrastructure on time, on budget, and with transparency and high standards.
Through 74 compact and threshold grants since its inception, MCC has invested more than $15 billion in 46 countries across five continents. These high-quality, predictable grants—which are multi-year and flexible and do not add to a country’s debt burden—represent a powerful tool for the U.S. government (USG) to incentivize good governance and democratic values. MCC is often the largest USG investor in countries where it operates, with compact grants that have successfully delivered projects in key sectors ranging from transportation and infrastructure to energy, agriculture, health, education, and community services. These substantial investments in core infrastructure and policy and institutional reforms are key interventions that are improving the lives of nearly 270 million people.
The FY 2024 budget request supports the following activities:
- Program Development. MCC is currently developing compact programs with Belize, Sierra Leone, The Gambia, Togo, Zambia, two regional programs with Cote d’Ivoire and Senegal, and a threshold program in Mauritania. Additionally, FY 2024 funds would cover initial development costs of new compact and threshold program selections to be made by MCC’s Board of Directors in 2023.
- Oversight. MCC maintains a rigorous oversight model across 26 programs, including compact and threshold program reviews, portfolio management, activity modifications, and the elimination of programs or activities when deemed appropriate.
- Selection and Economic Analysis. MCC administers a competitive selection process, where countries must first pass MCC’s scorecard of 20 independent, third-party indicators that measure a country’s policy performance in the areas of ruling justly, economic freedom, and investing in people. MCC administrative funds will fund staff and the administration of economic and constraints analyses.
- Evidence, Monitoring and Evaluation. MCC has an evidence-based approach to developing projects and assessing impacts, including publishing MCC Evaluation Briefs and Star Reports, and consistently earns top rankings for the agency’s commitment to transparency and evidence. These reports consolidate critical programmatic information throughout the lifecycle of each compact and threshold program to draw on the lessons learned in areas such as performance, sustainability, and other best practices.
- Compact Acceleration. MCC aims to accelerate and streamline compact and threshold development processes to leverage efficiencies, reduce timelines, and maintain quality.
MCC is seeking three legislative changes that would expand MCC’s impact and better enable it to fulfill its congressionally mandated mission of reducing poverty through economic growth. The three proposed changes include:
- The MCC Eligibility Act. Many countries that MCC cannot currently consider face increasing challenges to their economic growth that threaten to jeopardize years of poverty reduction: the war in Ukraine, the COVID-19 pandemic, rising migration, food insecurity, rising debt burdens, and increased natural disasters—the challenges facing countries on their development paths have widened and deepened. This legislation would redefine MCC’s candidate pool to include countries below the International Bank for Reconstruction and Development (IBRD) graduation threshold, while retaining the core of MCC’s successful model.
- Funding for compacts with lower middle-income countries (LMICs). Current legislation prohibits MCC from allocating more than 25 percent of its annual program appropriation for compacts with LMICs. This limitation should be removed to enable MCC to right-size compact programs based on opportunities and the potential to reduce poverty through growth, irrespective of country income classifications.
- Updating MCC’s Annual Report requirements to decrease the reporting burden and communicate the agency’s accomplishments of the past fiscal year. The proposed language would amend MCC’s authorizing statute to make the agency’s report due to Congress in December of each year rather than on March 31st of the following year.
- Additional details have been provided in a later section within this document.
Partnership for Global Infrastructure and Investment (PGII)
MCC has nearly 20 years of experience providing a comprehensive suite of development investments in high-quality, critical infrastructure projects that meet the tremendous infrastructure needs of partner countries without adding to country debt burdens. MCC’s large, multi-year grants—which have ranged from $66 million up to $700 million in size over five years—enable the agency to drive policy and institutional reforms to promote sustainability while also pursuing core physical infrastructure investments that catalyze economic growth. MCC leverages key policy and institutional reforms to broaden the impact of investments while also creating an enabling environment for private sector investment.
Given the size of MCC’s infrastructure portfolio, and proven experience managing large infrastructure projects, MCC is well positioned to continue contributing to PGII. MCC’s experience financing infrastructure needs, from the development of master plans and other preparatory/feasibility studies to financing construction to developing the human resources needed to manage an asset, to employing innovative blended finance instruments to help draw in the private sector, has allowed MCC to produce systemic and long-lasting results.
Within MCC’s existing portfolio, there are several programs that align closely with PGII including: MCC’s $350 million compact with Mongolia, $300 million compact with Lesotho, and $202 million compact with Kosovo. MCC is developing several programs that cross PGII’s thematic pillars, including programs in Mozambique, Sierra Leone, and Zambia. MCC is very proud to have its projects showcased by the White House as flagships of PGII including, most recently, MCC’s planned $649 million compact with Indonesia, which was approved by MCC’s Board of Directors and is expected to be signed in April 2023.
Although MCC is a small proportion of USG foreign assistance spending, MCC is one of the most visible USG investments in the countries where we work, with an economic growth mission that is well-aligned with PGII’s thematic pillars. Through newly signed compacts in FY 2024, MCC expects to invest $350 million directly in support of PGII pillars. Because sustainable infrastructure investment has long been one of MCC’s core strengths, PGII flagship projects are likely to continue to be identified in MCC programs.
Program examples include:
- Indonesia—MCC’s $649 million compact with Indonesia (expected to be signed in April 2023) will support PGII initiatives through the development of high-quality, climate-conscious transportation infrastructure in five provinces. In addition, it will mobilize international capital in support of Indonesia’s development goals, in part by building the capacity of Indonesia’s financial markets; and increase access to finance for Indonesia’s women-owned businesses and micro, small, and medium sized enterprises.
- Lesotho—MCC’s $300 million compact with Lesotho places a strong emphasis on improving government effectiveness, planning, and execution through three projects that are well aligned with PGII priority sectors, including climate. The compact’s Market-Driven Irrigated Horticulture Project will make a catalytic investment to help Lesotho realize the competitive potential of its horticulture sector. It places a strong focus on climate adaptation and resilience by replacing rain-fed agriculture with irrigated agriculture and working within communities to address land degradation that threatens Lesotho’s water supply. The project will create opportunities for women and youth both as landowners and agricultural workers. MCC also seeks to leverage private finance to reduce food loss and waste. All three projects included in the compact include elements of enhancing digital data collection, utilization, and analysis to drive decision-making.
- Mongolia—MCC’s $350 million compact with Mongolia supports economic growth by addressing the water shortage in Mongolia’s capital, Ulaanbaatar. During compact development, analysis of climate change impacts clearly showed that changes in summer temperatures, evaporation rates, and snowfall were expected to decrease the flows in the Tuul River. Because ground water and surface water modeling indicated that the combination of additional upstream withdrawals and the impacts of climate change would result in unacceptable impacts to Tuul River flows, MCC worked with the Mongolian Government to design a groundbreaking system to ensure the sustainability of the water supply system while also increasing the water supply to the city by 80 percent, including the first use of reverse osmosis technology in the country. Program impacts will be catalyzed by avoiding upstream withdrawals through adding new downstream groundwater wells, constructing an associated advanced water purification plant, building a new wastewater recycling plant, and supporting critical legal, regulatory, and institutional reforms.
- Solomon Islands—MCC’s $20 million dollar threshold program with Solomon Islands includes a Forest Value Enhancement Project that aims to improve management of natural resources in the forest sector. The project aims to reduce negative environmental impacts, increase and more equitably share the community and national revenues from forestry production, and achieve a more balanced regulatory and enforcement framework between logging and non-logging uses of forests.
- Timor-Leste—MCC’s $420 million compact with Timor-Leste seeks to improve the health and skills of people in Timor-Leste by reducing the disease burden caused by contaminated water sources and increase access to clean water by introducing the country’s first centralized sanitation and wastewater treatment system, improve related drainage, and supply clean drinking water for the capital city of Dili and four nearby municipalities.
Climate-resilient and otherwise sustainable investments have been a core MCC competency for years. MCC has invested $1.5 billion in climate-finance activities from fiscal year 2015 through 2020 and expects to fund approximately $1 billion in additional climate finance activities between 2021–2024.
MCC supports a just and equitable transition approach for partner countries to meet their Nationally Determined Contributions to the Paris Agreement and climate ambitions. MCC is committed to pursuing innovative, blended finance models to rapidly scale solutions for development. At COP-27, MCC and USAID launched Climate Finance +, a collaborative government approach to strategically use public financing to unlock billions in private investments for green bonds and climate-friendly infrastructure. Through Climate Finance +, MCC and USAID are collaborating to improve the capacity and enabling conditions in low and lower-middle income partner countries to accelerate the use of innovative finance mechanisms. MCC will work with partner countries in relevant compacts under development—specifically Indonesia, Mozambique and Zambia—to explore opportunities to leverage greater levels of financing for green infrastructure by providing technical assistance required to enable strategic use of green bonds and other blended finance tools.
MCC’s investments in partner countries integrate climate considerations and best practices into program design and implementation. MCC investments in critical sectors like energy, water, transportation, and agriculture are part of a holistic approach to addressing the climate challenges facing some of the world’s most vulnerable communities, financing adaptation efforts, and promoting low carbon economic development. With more than $4 billion in total anticipated investments between 2021-2025, MCC is well positioned to make a significant impact on climate change.
Examples of MCC’s work on climate include:
- Mozambique—MCC’s $500million compact with Mozambique will include a coastal climate resilience program. As one of the most vulnerable countries in the world to climate change, this investment will reduce the country’s susceptibility to climate shocks. The program will work with a range of local and international organizations to restore and protect critical coastal areas which are vital to ensuring food security and protecting natural resources to reduce impacts of flooding.
- Niger—MCC’s $443 million compact with Niger focuses on agriculture and includes investments in irrigated agriculture and a project that aims to strengthen rural communities’ resilience against climate change. The program includes promotion of sustainable land management for agriculture lands, natural resource management, and a community climate resiliency grant program.
- Kosovo—MCC’s $202 million compact with Kosovo seeks to transform Kosovo’s energy sector to be more sustainable, inclusive, reliable and affordable. The compact includes an Energy Storage project and a Just and Equitable Transition Acceleration project. In addition, the compact seeks to promote additional private-sector investments in Kosovo’s energy sector through the American Catalyst Facility for Development (ACFD) project to be conducted in collaboration with the U.S. International Development Finance Corporation.
- The Gambia—MCC’s $25 million threshold program with The Gambia aims to support institutional and policy reforms in the energy sector that are geared toward a transition to lower-carbon forms of energy, The Gambia’s efforts to meet its conditional emissions goals in the Nationally Determined Contributions and leverage blended finance tools to mobilize private capital into climate-smart activities.
- Nepal—MCC’s $500 million compact with Nepal includes investments in electricity transmission that will increase the availability and reliability of electricity—including from renewable hydropower sources— for both domestic consumption and export.
Inclusion and Gender
With the launch of the new Inclusion and Gender Strategy, MCC renews and deepens its commitment to integrating inclusion and gender measures into MCC-funded programs so that previously excluded groups have more access to the benefits of MCC’s investments. MCC is working to increase the number of its investments that are designed to address exclusion in various sectors and have a core focus on inclusion in their program logic and intended impact.
MCC’s FY 2024 budget request will allow the agency to advance its work on inclusion and gender and enable the agency to:
- Strengthen the integration of inclusion and gender in its analytical tools. MCC will more systematically analyze how structurally excluded groups are affected by the diagnosed binding constraints to growth, and how they are affected by—and how their exclusion affects—the underlying root causes of the constraints, using quantitative and qualitative evidence. These enhanced tools will be deployed in programs under development in FY 2024, including Belize, The Gambia, Mauritania, Regional (Senegal), Togo, and Zambia.
- Fully integrate inclusion and gender into all stages of program development and implementation. MCC will identify and integrate specific measures to increase access, economic opportunity, and sustained results for structurally excluded groups, looking for opportunities in all sectors, including infrastructure. In the Lesotho Health and Horticulture Compact, inclusion and gender are integrated into health systems, agriculture, entrepreneurship, and finance. In the new Kosovo Compact, MCC is supporting gender-focused vocational education and training, while providing incentives to companies to increase women’s employment in the energy sector.
- Support policy and institutional reforms to enhance the inclusion and gender impacts of MCC investments. MCC will identify policy, legal, administrative, and regulatory constraints to equity, equality and inclusion, and support partner countries to dismantle systemic barriers, including customary, social norms and informal institutions that limit the ability of women and excluded groups to be equal economic actors and would inhibit equitable participation in MCC funded programs. The Lesotho Health and Horticulture Compact is conditioned on four legal reforms that will strengthen women’s legal rights by addressing gender-based violence, allowing women to inherit and own land, and improving labor rights (including for agricultural workers).
- Catalyze private capital for investments that promote inclusion and gender to help achieve MCC project objectives. MCC will leverage, de-risk, and increase commercially oriented funding for increased inclusion and gender in programs through the use of blended finance tools. For example, in the Indonesia Compact (expected to be enter-into-force in FY 2024), MCC’s program will increase access to finance for micro-, small-, and medium-enterprises, especially for women, which will provide significant new funding and address policy barriers.
- Increase the role, voice, inputs and agency of local actors and civil society, including those that represent poor people, women and youth in program development and implementation. MCC will continue to engage with inter-agency partners such as the Gender Policy Council to advance inclusion and gender. In FY 2024, MCC will engage with its country partners to diversify stakeholder participation in program development and implementation.
Diversity, Equity, Inclusion, and Accessibility (DEIA)
In 2021, MCC hired the agency’s first Chief Diversity Officer who has been making strides to further engrain DEIA into MCC’s operations. In May 2022, MCC publicly released its DEIA Strategic Plan. The plan outlines an integrated approach to advancing DEIA by embedding it into the agency’s mission, human capital strategy, corporate goals, and workstreams. The agency also recently launched a new DEIA council, which gathers and empowers employee feedback and input on diversity issues, and implements the strategic priorities outlined in the strategic plan.
In FY 2024, MCC will continue to deepen its commitment to DEIA with tangible and measurable actions that drive results. With an increasingly diverse workforce, MCC must be intentional about cultivating, nurturing, and sustaining an inclusive workplace culture where differences are leveraged to produce innovative solutions that meet the needs of our employees, global partners, and the international development community. As MCC strives to attract, recruit, develop, advance, and retain diverse talent, we will need to allocate resources toward those efforts across the employee life cycle. This will require implementation of technologies and solutions that enable an evidence-based approach to decision making to which we apply new DEIA frameworks, standards, and performance metrics. We will also develop and implement a DEIA competency framework and performance elements to ensure accountability for advancing DEIA.