In 2006, the Millennium Challenge Corporation (MCC) and the Government of Armenia (GoA) signed a five-year, $235.65 million compact to improve two main barriers to economic growth: a lack of reliable infrastructure and the slow development of businesses, particularly agribusinesses. The compact consisted of two projects:
- The Irrigated Agriculture Project ($145.67 million) aimed to address the physical, managerial, and financial investments needed to generate sustainable increases in rural income through irrigated agriculture. This project consisted of two complementary activities: (i) the Infrastructure Activity and (ii) the Water-to-Market Activity (WtM).
- The Rural Road Rehabilitation Project (RRRP) ($67.1 million) aimed to rehabilitate up to 943 km of the high-priority lifeline network, a network of secondary and local roads which sought to ensure that all communities, towns and villages were linked to the main road network, either directly or through other communities.
MCC’s Board of Directors (Board) selected Armenia as eligible to develop a compact in May 2004. The compact was signed on March 27, 2006 and entered into force on September 29, 2006. In May 2008, MCC’s CEO placed a hold on the disbursement of all remaining funding for the RRRP (approximately $58.65 million) due to actions by the GoA following the February 2008 presidential elections that MCC determined to be inconsistent with its eligibility criteria, particularly with regard to democratic governance. At its June 2009 meeting, MCC’s Board endorsed the hold, directing MCC not to resume funding for the RRRP for the duration of the compact due to these actions and Armenia’s lack of demonstrated commitment to MCC’s eligibility criteria. This effectively ended all remaining planned MCC funding and work for the compact’s road project through compact closure and reduced the original $235 million compact amount to approximately $177 million.
Upon compact completion on September 29, 2011, the GoA spent 99.7 percent of the $177 million in remaining compact funding.
Under the Irrigated Agriculture Project, 17 irrigation pumping stations were rehabilitated; over 45,000 farmers were trained in on-farm water management techniques; over 35,000 farmers were trained in high-value agriculture (HVA) techniques; five gravity-fed irrigation systems were constructed, including almost 50 kilometers of canals; over 260 water structures were installed on six main canals; approximately 230 kilometers of tertiary canals were rehabilitated and improved across approximately 100 communities; and $12.7 million of credit to over 1,000 farmers was distributed through existing Armenian banks and other financial institutions. The independent evaluation found that while farmers near tertiary canals perceived improvements in the timeliness and reliability of irrigation water and some simple high-value practices such as soil preparation were adopted, key outcomes were not realized such as irrigating more land, producing more HVA crops, or increasing household income.
Under the Rural Road Rehabilitation Project, the compact originally aimed to improve 943 km of roads. After the project re-scoping in April 2008 due to currency devaluation and construction cost escalation, the target was reduced to 332 km. As a result of the May 2008 hold on funding due to post-election events in March 2008, only 3 percent of the original target was completed using compact funds. However, the World Bank used the MCA-funded detailed designs to construct or rehabilitate approximately 150 km of additional rural roads and the GoA decided to co-fund the project in the amount of USD $16.8 million to rehabilitate certain road sections. Before MCC placed the hold on funding, 24.4 kilometers of road in rural Armenia were rehabilitated, road roughness improved by 75 percent, and average daily traffic increased by 15 percent. An independent evaluation covering the roads designed by MCC, but built with World Bank funds, found that the road rehabilitation efforts improved road quality and increased the use of roads in the short term. However, those changes were not sufficient to stimulate increases in agricultural production and sales in a time frame of one to two years.
This report provides a summary of the tangible outputs of the compact program, documents changes in compact activities and the reasons behind them, details information on performance against targets in the monitoring plan, and summarizes the results of the independent evaluations.