What is the MCC Effect?
The “MCC Effect” refers to the positive impact of MCC’s rigorous commitment to sound policies beyond MCC’s direct development investments in the form of compacts and threshold programs in partner countries. The term has been used to describe all the favorable implications of MCC’s focus on policy performance—including country-led development and policy reform. However, a more specific use of the term refers to the incentives created by MCC’s selection criteria and captured on its annual country scorecards.
MCC’s selection criteria encourage countries to reform policies, strengthen institutions and improve data quality in order to boost their performance on MCC’s scorecard. In an independent survey of development experts and foreign government officials in 2012, 92 percent of respondents believed MCC’s eligibility criteria had an impact on reform in their country.
The publicly available and transparent scorecards allow other stakeholders—including donors, journalists, civil society organizations, and private sector investors—to assess governments’ performance and track trends over time. Many countries view their ability to perform well on MCC’s scorecard as a seal of approval, signaling to their citizens and to the private sector that the country is well-governed and open for business.
92 percent of respondents believed MCC’s eligibility criteria had an impact on reform in their country.
—Measuring the Policy Influence of the Millennium Challenge Corporation: A Survey-Based Approach
What is not the MCC Effect?
While the MCC Effect appears to impact many candidate countries—those categorized as low income or lower middle-income countries—it does not impact every country. Some countries do not have sufficient capacity, resources or political will to focus on policy reform. Other countries have performed well on MCC’s scorecards for years and have less incentive and less room to make further improvement. Although it is unlikely that all candidate countries are incentivized, many appear to be: Development experts have identified 67 governments that undertook reform to improve performance on at least one of MCC’s eligibility indicators since 2004.
Better performance on MCC scorecards is not the only reason countries reform their policies. The policies measured on MCC’s scorecards—including immunization rates, inflation and control of corruption—directly impact the well-being of countries’ citizens and the health of their economy. Many countries actively work to improve performance in these areas, and many donors assist them in these endeavors. However, improving on the MCC scorecards can give these governments an additional incentive and a method of tracking progress. In the 2012 survey, 80 percent of respondents agreed that MCC’s eligibility criteria helped governments measure their own performance, and 78 percent agreed they strengthen government resolve to implement reforms.
The MCC Effect in Action
MCC measures the impact of its compact and threshold program investments across a continuum of results. Similarly, it is possible to track the MCC Effect across various stages of a continuum.
Governments or civil society organizations often contact MCC, U.S. embassies or institutions that provide the data used in MCC’s scorecard indicators to express their initial interest in learning about MCC’s selection process and their performance on the scorecard.
- MCC staff members have more than 50 meetings each year with foreign governments, civil society organizations, donors, or other agencies who are interested in learning more about how specific countries perform on the MCC scorecards.
- In the 2012 survey, nearly 70 percent of respondents said they have met with U.S. Government officials about issues related to performance on the MCC scorecard.
After the initial meetings, some governments establish inter-ministerial committees to help improve performance on the MCC scorecard. These committees often communicate with MCC and the indicator institutions, familiarize themselves with the technical details of each indicator and learn how they are assessed by each indicator institution. They might prioritize indicators on which to focus, determine plans for improving performance and ensure their plans are well integrated into the government’s development strategy. They may also ensure the data on the scorecard is current. Civil society organizations or journalists may use the scorecards to advocate for reform.
A country’s scorecard performance is tracked closely by governments, and also frequently by civil society organizations and journalists. In the 2012 independent survey, 68 percent of development experts and foreign government officials agree that MCC’s scorecards enable civil society and journalists to more effectively advocate for reform.
Following Niger’s selection for threshold program eligibility in 2006, the Nigerien government formed an inter-ministerial committee that worked with MCC and indicator institutions to improve policy performance and data quality. The committee continued to operate successfully during periods of substantial domestic political change, including a coup and two elected governments. Its efforts ensured reforms implemented by the government were recognized, including the establishment of the Termit and Tin Toumma National Nature and Cultural Reserve (a protected area the size of Indiana), and progress on gender equality that ensured men and women enjoy the same rights to pass citizenship on to their children and apply for passports. In June 2016, the MCC Board of Directors approved a compact with Niger, which was signed in July 2016.
Kosovo became an independent country in 2008 and was not initially covered by many indicators. The Government of Kosovo worked with MCC and data institutions like the International Finance Corporation to expand coverage. As a result of this work, the number of indicators covering Kosovo doubled from seven to 14 by 2012. Of the indicators that still did not cover Kosovo, six come from United Nations agencies that do not publish data on Kosovo because it is not a member state. Through continued work with the UN Kosovo Team the Government of Kosovo was able to learn about the methodologies used by the various UN agencies that produce data. As a result, Kosovo was able to provide MCC with directly comparable data for four of the six missing UN-sourced indicators and passed the MCC Scorecard in 2016. In June 2017, MCC’s Board of Directors approved Kosovo for a proposed threshold program.
After Liberia was selected for threshold program eligibility in 2008, the Liberian government created a steering committee composed of ministers and deputy ministers from relevant agencies. With strong support from their president, the ministers were instructed to focus on improving Liberia’s performance on the scorecard. While working with MCC, USAID and the indicator institutions, the steering committee uncovered outdated tariff data in the trade policy indicator and missing data on the education indicators. The steering committee coordinated across the government to ensure the data was updated in a timely manner. In 2012, Liberia passed the MCC scorecard for the first time and was selected by MCC’s Board of Directors to develop a proposal for a compact. The Liberia Compact was signed in October 2015.
In 2012, the Government of Guatemala partnered with a nonprofit organization to work on improving its scorecard. Together, they outlined strategies for improving performance on the indicators and prioritized reforms by short- and mid-term feasibility. Initial progress toward reform included enacting an anti-corruption law, prosecuting people on human rights abuses and creating a Ministry of Social Development to prioritize nutrition, health and education. In December 2012, the MCC Board of Directors selected Guatemala as eligible to develop a proposal for a threshold program, and in April 2015, MCC signed the Guatemala Threshold Program with the Government of Guatemala.
Over time, some governments subsequently implement reforms, strengthen institutions and improve data quality. Improvements can often be seen in third-party assessments, including the data provided by the indicator institutions that inform MCC scorecards. 1
The Government of Sierra Leone began engaging regularly with MCC in 2006. At the time, Sierra Leone was only three years removed from its civil war and passed just six indicators on MCC’s scorecard. Over the following years, the Government of Sierra Leone engaged with indicator institutions to learn more about its performance and how to improve. Actions included:
- In 2008, Sierra Leone expanded the mandate and resources of its anti-corruption agency, including giving it strong leadership and enforcement capacity. This agency subsequently won international awards and contributed to three years of sustained improvements on Worldwide Governance Indicators’ control of corruption indicator.
- Within five years, Sierra Leone increased public health expenditures from 2.2 percent to 3.2 percent of gross domestic product and increased immunization coverage from 65 percent to 82 percent.
- Sierra Leone reduced average tariff rates from 13.6 percent to 9.9 percent, expanded access to credit and strengthened regulatory quality.
Sierra Leone continues to focus on its scorecard performance, even in the face of daunting challenges such as the Ebola crisis; in recognition of these years of effort, MCC’s Board of Directors selected Sierra Leone for a threshold program in December 2014, which was signed in November 2015. Sierra Leone continues to work to improve scorecard performance.
Since the creation of MCC in 2004, Georgia has catapulted from 112th place to ninth place on the International Finance Corporation’s Ease of Doing Business Index. It overhauled tax and customs administration, business registration, property registration, and the court system. In April 2011, the country completed a compact with MCC, and in July 2014, entered into a new compact building on the success of the first compact.
In 2008, the Government of Honduras publicly committed to an anti-corruption plan, established to address specific policy weaknesses identified by the MCC scorecard. In 2012, the Open Budget Initiative found that the Honduran government had improved budget transparency by increasing public availability of key budget documents, including the executive’s budget proposal, the mid-year budget review and the budget audit report. The Public Expenditure and Financial Accountability 2012 assessments found significant improvements in public financial management in three areas: internal controls on expenditure, reporting on extra-budgetary funds and congressional scrutiny of budget and audit reports. 2
The policy reforms undertaken by governments may lead to important outcomes related to poverty reduction and economic growth. For example, after significantly reducing the time, cost and procedural complexity of starting a business in Georgia, business registrations shot up by 55 percent between 2005 and 2006 . 3 In “Celebrating Reforms 2007: Doing Business Case Studies”, the World Bank explicitly hailed MCC as a catalyst for business-related reform in Georgia, Burkina Faso, El Salvador, and Malawi. And as Sierra Leone invested more in public health and improved immunization rates, the rate of child mortality fell from 209 to 185 deaths per 1,000 births between 2005 and 2007 . 4
Reforms generated by the MCC Effect have an important impact on countries, even in countries where MCC has not established a partnership or disbursed any funding. MCC continues to gather information on this type of outcome associated with the MCC Effect and welcomes the findings of outside research in this area.