Threshold Programs

(in millions of $)	FY 2018 Enacted	FY 2019 Enacted	FY 2020 President's Budget
Total Appropriation/Request	905.0	905.0	800.0
Threshold Programs	29.8	45.0	26.5

MCC is requesting $26.5 million for threshold program assistance. The threshold program has proven to be an effective tool to incentivize and implement positive policy and institutional reforms in selected partner countries. The AGOA and MCA Modernization Act affirmed MCC’s authorization to make up to 10 percent of its annual appropriation available for threshold program assistance. MCC’s request for FY 2020, together with enacted funding from prior years, would support new threshold programs selected in December 2019 as well as thresholds under development including Togo, The Gambia, Ethiopia, and Solomon Islands.

Background

MCC’s threshold program assists 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, threshold programs complement the “MCC Effect”[[The "MCC Effect" refers to the positive impact of MCC's rigorous commitment to sound policies beyond MCC's direct development assistance in the form of compacts and threshold programs in partner countries.]] created by the scorecard and allow MCC to assess the opportunity for an impactful and cost-effective partnership before committing to a larger compact. MCC uses the same rigorous, evidence-based approach in threshold programs as it does in compacts, leading to high-quality programs that maximize potential systemic impact and lay the foundation for larger funding.

Threshold programs help countries to reduce constraints to faster economic growth, increase transparency and accountability, and provide MCC critical information about their political will and capacity to undertake the types of reforms that would have the greatest impact in compacts. Current programs are:

Honduras: supporting greater budget transparency and reducing opportunities for corruption in public procurement;
Guatemala: mobilizing customs and tax revenues and improving secondary education;
Sierra Leone: creating the foundation for more effective and financially sustainable provision of critical water and electricity services; and
Kosovo: fostering the use of data for more transparent and accountable governance.

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 threshold program country will likely have enhanced its ability to design and implement programs 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, its threshold program can help create the conditions for additional investment from the private sector or by other donors. Threshold 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.

New and Developing Threshold Programs

Togo

MCC and Togo signed a $35 million threshold program with Togo on February 14, 2019. As the result of a dedicated reform effort, Togo has moved from passing 5 of 20 indicators in FY 2014 to 14 of 20 indicators in FY 2019, including the “hard hurdle” Control of Corruption indicator. The Government of Togo has worked closely with MCC to conduct a constraints analysis and developed an ambitious program to address critical constraints in its information and communications technology (ICT) and land sectors. The program will seek to improve access to high quality and affordable ICT services to Togolese citizens by encouraging private sector investments in the ICT sector and developing an independent regulatory regime. In the land sector, the program aims to expand access to formalized land through the recognition and protection of legitimate land rights in order to accelerate agricultural productivity.

The Togo threshold program presents the government with a unique opportunity to undertake major reforms in challenging and politically sensitive areas. If successful, the program would mark a positive step towards Togo becoming a more open and inclusive society and foster a more market-oriented economy. Both the ICT and land projects will also challenge deeply-rooted sources of corruption.

The Gambia

MCC’s Board of Directors selected The Gambia for a threshold program in December 2017, creating the opportunity for MCC to engage with the country on needed reforms as its transition to democracy continues. The Gambia is an important partner in West Africa, where MCC already has a strong presence. The program is expected to focus on power sector reform and be ready for presentation to the MCC Board in September 2019.

Ethiopia

MCC’s Board of Directors selected Ethiopia as eligible to develop a threshold program in December 2018. The decision underscores the Board’s recognition of the recent reforms made by the Government of Ethiopia. In early 2019, MCC expects to begin the constraints analysis in partnership with the government to identify the binding constraints to private investment and entrepreneurship in the country.

Solomon Islands

MCC’s Board of Directors selected Solomon Islands as eligible to develop a threshold program in December 2018, which also supports the Administration’s Indo-Pacific economic strategy. In early 2019, MCC expects to begin the constraints analysis in partnership with the government to identify the binding constraints to private investment and entrepreneurship in the country.

Future Programs

The funding request for FY 2020 will support programs within countries that are to be selected by the Board in December 2019. With an average program size of approximately $30 million, the funding requested would allow MCC to begin development with an additional country should promising candidates emerge in the annual selection process.