| (in millions of $) | FY 2018 Enacted | FY 2019 Enacted | FY 2020 President's Budget |
|---|---|---|---|
| Total Appropriation/Request | 905.0 | 905.0 | 800.0 |
| Total Compact Assistance: | 680.0 | 631.5 | 529.0 |
| Section 605 | 486.7 | ||
| Section 609(g) Compact Development Funding (CDF) | 42.3 |
MCC is requesting $529 million in FY 2020 to continue development on key compacts in Burkina Faso, Kosovo, Lesotho, and Timor-Leste, including an estimated $486.7 million in compact assistance and $42.3 million in compact development funding.
| Countries and Appropriations Used (in millions of $) | Prior Years | FY 2019 | FY 2020 | Total |
|---|---|---|---|---|
| Timor-Leste | 250 | 250 | ||
| Lesotho | 89 | 162 | 250 | |
| Kosovo | 20 | 74 | 94 | |
| Burkina Faso | 304 | 44 | 348 | |
| Sri Lanka | 480 | 480 | ||
| Tunisia | 192 | 158 | 350 | |
| Indonesia | TBD | |||
| Malawi | TBD | |||
| Regional | TBD | |||
| Total | 693 | 550 | 529 | 1,772 |
Timor-Leste
Estimated $250 Million CompactIn December 2016, MCC’s Board of Directors selected Timor-Leste to develop a threshold program. As part of this program, MCC and Timor-Leste jointly completed a constraints analysis that identified poor public financial management, a weak business enabling environment, and low human capital as binding constraints to economic growth and private-sector investment. In December 2017, MCC’s Board selected Timor-Leste to develop a compact. MCC is currently conducting sector analyses in collaboration with Timor-Leste, the private sector, development partners, and civil society. MCC expects Timor-Leste to develop concept papers for MCC consideration in FY 2019 that respond to the binding constraints highlighted above. The target date for negotiating the Timor-Leste compact is fourth quarter FY 2020.
Lesotho
Estimated $250 Million CompactMCC’s Board selected Lesotho for development of a second compact in December 2017 following a two-year hiatus when the Board deferred its vote during a period of political instability in the country. MCC began preliminary data collection in early January 2018, while awaiting the appointment and selection of staff for the government of Lesotho’s compact development team. MCC kicked off the constraints analysis in February 2018 and performed stakeholder consultations and meetings in Maseru in late February. The MCC team and Lesotho’s compact development team collaborated to complete the constraints analysis in April 2018, and identified two binding constraints to growth in Lesotho: (i) poor health primarily related to HIV/AIDS and (ii) ineffectiveness of policy planning, coordination and execution, including poor public financial management, within the government of Lesotho.
Lesotho’s rate of new HIV/AIDS infections is the highest in the world and largely affects the working-age population. The disease hinders labor productivity, discourages investments in job-creating sectors, and imposes large direct costs on healthcare and care for HIV/AIDs orphans and other dependents. The second constraint to economic growth encompasses various inefficiencies within Lesotho’s public domain, including inefficient public service delivery, investment management, and financial management as well as poor planning and coordination with the private sector. Poor financial planning of government funds, inefficient procurement processes and delayed payment for services rendered have had a significant negative impact on the operations and finances of private companies. MCC and Lesotho country teams continue to collaborate on the more detailed root cause analysis and concept papers to be presented for internal MCC review in the third quarter of FY 2019.
Results from Lesotho’s 2007 Compact
The government of Lesotho and MCC signed a $362.5 million compact designed to increase economic growth and reduce poverty in July 2007. The compact funded work with other international donors on one of the largest infrastructure improvement projects in Lesotho’s history, the Metolong Dam, as well as work with the President’s Emergency Plan for AIDS Relief (PEPFAR) to mitigate the negative economic impacts of poor maternal health, HIV/AIDS, tuberculosis and other diseases. By the end of the compact in September 2013, the government and MCC had spent nearly 99 percent of anticipated compact funds to improve water supply, increase access to essential health services, and remove barriers to private sector investment. Approximately 1 million people are expected to benefit from the compact. Over 29,000 ventilated improved pit latrines and 175 water systems were constructed by the end of the compact, with another 75 water systems completed post-compact with funding from the government of Lesotho.Kosovo
Estimated $94 Million CompactIn September 2017, MCC and the Kosovo signed a $49 million threshold program that addresses two key constraints to Kosovo’s economic growth: an unreliable supply of electricity; and real and perceived weakness in rule of law, government accountability and transparency. In December 2018, MCC’s Board of Directors selected Kosovo to develop a compact program that would proceed in addition to the ongoing threshold program. MCC is currently in discussions with Kosovo on compact development. Because of MCC’s previous groundwork in developing the existing threshold program, it is expected that the compact development timeline for Kosovo will be truncated as MCC plans to use the existing constraints analysis and concept papers when developing this compact MCC has included $94 million in this request for the targeted negotiations of the compact in fourth quarter FY 2020.
Burkina Faso
In December 2016, MCC’s Board of Directors selected Burkina Faso to develop a second compact. Two binding constraints to economic growth were subsequently identified by the Government of Burkina Faso through the constraints analysis: the high cost, poor quality and low access to energy; and a low-skilled workforce. MCC and the Government of Burkina Faso have since been working to define and scope the future compact, which will focus on energy. Specifically, MCC is conducting due diligence and feasibility studies on three projects: Strengthening Electricity Sector Effectiveness (reform and capacity building); Cost-Effective and Reliable Energy Supply (generation); and Grid Development (transmission and distribution/access). This power investment has significant monetary and political support from the government of Burkina Faso. The proposed projects were presented for MCC consideration in September 2018, for an intended compact approval by the Board and compact signing in the first half of FY 2020.Results of Burkina Faso’s 2009 Compact
MCC’s $480 million compact, which ended in July 2014, was characterized by Burkina Faso’s commitment and high-level engagement. All conditions precedent were met. Notably, many of these required significant institutional reforms, and others required adoption of major new laws by the National Assembly and issuance of 52 implementing decrees and regulations. The compact consisted of projects in land reform, agriculture, transportation, and education. The compact successfully trained 8,700 local officials in lands rights and more than 13,000 land possession certificates were in process by the end of the compact—well over the original target of 6,000. The multifaceted agriculture project constructed 2,240 hectares of irrigated farmland and rehabilitated a dam, protecting compact-financed infrastructure from catastrophic flooding. MCC funded the paving, upgrade or periodic maintenance of 525 kilometers of roads by the end of the compact term and assisted in the development of a new road maintenance planning tool to facilitate future planning and continued management of the country’s road network. The BRIGHT II Schools project built on the education component in the earlier MCC threshold program by supporting the construction of 396 classrooms and increasing access to girls’ participation in primary school.Sri Lanka
Sri Lanka was selected for a threshold program in December 2015 and was selected to develop a compact in December 2016 after continued improvements in performance on the democratic rights indicators on the MCC scorecard. Following a series of joint analyses and consultations, MCC and the Government of Sri Lanka agreed to develop a compact program designed to tackle the binding constraints of poor transportation and logistics infrastructure and inadequate access to land through a Transport Project and a Land Project.The Transport Project aims to (i) reduce traffic congestion in the Colombo Metropolitan Region by upgrading eight major road corridors, (ii) provide citizens with safe, reliable bus service – the main form of public transport; and (iii) rehabilitate a rural highway network that connects lagging regions in the central part of the country with markets and ports in the Western Province.
The goal of the Land Project is to increase the availability of underutilized state and private lands for investment purposes by increasing the amount of spatial data and land rights information available to investors and improving the regulatory environment so underutilized state lands can be more easily provided to the private sector for investment purposes. The Land Project also aims to increase tenure security and tradability of land for smallholders, women, and firms through policy and legal reforms.
Tunisia
Since Tunisia’s initial selection to develop a compact by the MCC Board in December 2016, MCC and the Government of Tunisia have been working diligently to define and scope the two projects that will comprise the Tunisia compact. The first project, aimed at improving Tunisia’s business climate, may focus on modernizing the environment for doing business by reducing barriers to investment and facilitating logistics and commerce. The second project may address water scarcity and reduced investment in Tunisia’s interior regions by increasing water supply, managing water demand, and promoting agricultural value chains.Tunisia’s constraints stem from pre-revolution patterns of unequal investment and job creation, unfair regulatory regimes that favored the elite, and inter-regional politics. Alleviating these constraints will generate growth, increase employment, and more evenly distribute economic opportunities. The country team continues to work toward compact development for a projected compact approval in late FY 2019.
Indonesia
Compact size to be determinedIn 2018, MCC completed a compact program with Indonesia that disbursed $474 million through projects focused on nutrition and health to address stunting, sustainable energy and natural resource management solutions, and the modernization of Indonesia’s procurement system. Based in part on the strength of the partnership of the first compact, the MCC Board selected Indonesia to develop a second compact in December 2018. MCC is currently in discussions with Indonesia on development of the second compact.
Malawi
Compact size to be determinedIn December 2018, MCC’s Board selected Malawi to develop a subsequent compact. The Board’s decision recognized the successful implementation of Malawi’s first compact, designed to improve the availability, reliability and quality of the power supply, expanding access to power, and reduce the cost of doing business; Malawi’s improved scorecard policy performance; and a commitment to further sector reform. MCC will launch the constraints analysis in FY 2019 to identify the binding constraints to economic growth.
Potential Concurrent Compacts for Regional Programs
The recently enacted AGOA and Millennium Challenge Modernization Act authorizes MCC to enter into one additional compact with a country in order to support regional economic integration, increased regional trade, or cross-border collaborations. Regional integration projects involving multiple countries facilitate economic growth and can have a powerful impact through their potential to benefit from economies of scale, create potential connections of regional power, transport, and water networks, generate increased trade and investment, and open new market opportunities for U.S. businesses. Support for regional integration projects has tremendous potential to increase MCC’s impact in reducing poverty with its compact partner countries.In December 2018, the MCC Board selected Benin, Burkina Faso, Côte d’Ivoire, Ghana, and Niger as eligible to develop compacts for regional integration. This request supports work with each of the countries to determine if there are projects that meet MCC’s strict compact approval criteria as well as evaluate the countries’ ability to work with MCC and a partner country on a regional program. MCC will simultaneously research and work with the selected countries to identify projects that would have a positive economic impact for each country involved, as well as the region. Regional programs will also continue to employ MCC’s longstanding local implementation and accountability practices with countries that meet strict criteria for good governance.
In FY 2019, MCC will continue to focus best practices for operationalizing regional programs using this new concurrent compact authority, while adhering to the agency’s accountability-driven, country-owned processes and the core elements of MCC’s model to produce high economic rates of return. Though the process will be adjusted to accommodate multiple partners, projects will be subject to the same rigorous economic analysis and economic rate of return standards that ensure program logic is geared toward a measurable impact on poverty.
In FY 2019, MCC will continue to oversee nine compacts in implementation or reaching closure status, 3 compacts signed in previous fiscal years and progressing towards implementation, and 2 potential new compact signings. The chart below and the subsequent pages provide updates for all of the compacts currently in development, including estimated timing of board consideration and compact sizes. Program and sector data for countries already in implementation can be found online on MCC’s public website at www.mcc.gov.
Compact Development Process Overview
Compact Portfolio Status Report
