Executive Summary
| (in millions of $) | FY 2021 Enacted | FY 2022 Annualized Continuing Resolution | FY 2023 President’s Budget |
|---|---|---|---|
| Total Appropriation/Request | 912.0 | 912.0 | 930.0 |
| Compact Assistance | 651.0 | 651.0 | 651.0 |
| Threshold Programs | 31.0 | 31.0 | 31.0 |
| Compact Development & Oversight: | 113.5 | 113.5 | 113.5 |
| Compact Development Funding (CDF) | 30.0 | 30.0 | 28.0 |
| Due Diligence | 83.5 | 83.5 | 85.5 |
| Administrative Expenses | 112.0 | 112.0 | 130.0 |
| Office of the Inspector General | 4.5 | 4.5 | 4.5 |
Introduction
The Millennium Challenge Corporation (MCC) is requesting $930 million for fiscal year (FY) 2023 to deliver on its mission to reduce poverty through economic growth. The agency’s investments are sustainable and inclusive and promote job-rich growth in partner countries, while helping to create the right conditions for new markets and opportunities for American businesses. With cost-effective projects, a dedicated staff of experts and an evidence-based approach, MCC is a good investment for the American people.
Strong U.S. leadership and foreign assistance are needed now more than ever in the fight against global poverty. The current global context is extremely challenging, with the COVID-19 pandemic, the rise of autocracies, increasing geopolitical tensions and the impact of climate change threatening global economic growth prospects. With a robust portfolio, including a pipeline of important new programs that will be ready for approval by MCC’s Board of Directors and commitment of funds with compact signatures in FY 2023, the agency is poised to expand its evidence-based, cost-effective and values-driven model to help meet these challenges. These programs include opportunities across the strategic areas of climate, inclusion and gender, and catalyzing private sector investment, as well as substantial infrastructure investments that are aligned with the Build Back Better World (B3W) initiative. The agency will build on MCC’s 18-year track record of working with its partner countries to deliver complex, high-quality infrastructure on time, on budget, and with transparency and accountability.
Since its inception in 2004, MCC has signed $15 billion in compact and threshold grants across six continents. These high-quality grants—grants that are predictable, multiyear and flexible, and do not add to a country’s debt burden—represent a powerful tool for the U.S. Government to incentivize good governance and democratic values at a time when those principles, key to strategic U.S. business opportunities, are increasingly under threat around the world. Often the largest U.S. Government investor in countries where it operates, MCC has used its investments to successfully deliver more than 180 projects in seven key sectors ranging from transportation and energy to agriculture, health, education and community services, including substantial investments in core infrastructure and policy and institutional reforms. Collectively, these projects are improving the lives of an estimated 215 million people in 28 low income and lower middle income countries.
MCC’s operations are guided by its founding principles, which remain as relevant today as at the time of the agency’s creation 18 years ago. These principles are centered on a competitive selection process that reflects American values and the conditions for economic growth; a business-like approach with bedrock commitments to data, accountability, cost-benefit analysis and evidence-based decisions; and a laser focus on creating the right circumstances for private investment. To achieve maximum impact and value for money, MCC holds itself and its partners accountable for achieving results. MCC’s focus on transparency and accountability for results is consistently recognized. In December 2021, Results for America released the 2021 Invest in What Works Federal Standard of Excellence Report, an annual scorecard of how Federal agencies use evidence and data to achieve better results. For the sixth consecutive year, MCC received the highest score of all Federal agencies featured in the report for having built the infrastructure necessary to use data, evidence and evaluation in budget, policy and management decisions.
The FY 2023 budget request builds on MCC’s track record of success and, most recently, in FY 2022, the signing of threshold program agreements with the Solomon Islands ($20 million) and The Gambia ($25 million), as well as planned signings of compacts with Tunisia ($499 million), Timor-Leste ($420 million), Lesotho ($300 million), Kosovo ($200 million), Malawi ($350 million), Benin-Niger Regional Transport ($450 million) and the Kenya Threshold Program ($60 million), for aggregate investments of $2.3 billion.
MCC is requesting $930 million for FY 2023 to support the following:
- Compacts. $651 million in FY 2023 funds to support (when combined with prior-year funds) the following:
- Compacts expected to be signed in FY 2023 with Indonesia ($450 million) and Mozambique ($300 million).
- Ongoing and projected compact implementations across eight countries, including Côte d’Ivoire, Mongolia, Morocco, Niger and Senegal, as well as with partner countries facing governance, security, and mis- and disinformation challenges, such as Benin, Burkina Faso, and Nepal.
- Pre-implementation work across five countries: Kosovo, Lesotho, Malawi, Timor-Leste and Tunisia.
- Two projected concurrent regional compact programs focused on regional integration and trade: (1) the Benin-Niger Regional Transport Integration Program, projected to be signed at the end of FY 2022, and (2) the West Africa Regional Energy Interconnection Program ($200 million), to be supported through a concurrent compact with Côte d’Ivoire that is projected to be signed in FY 2023.
- Threshold Programs. $31 million for a country that may be selected by the board in December 2022. In addition, MCC expects to sign the Kiribati Threshold Program in FY 2023, and implementation of four threshold programs—The Gambia, Kenya, Solomon Islands and Togo—will also be ongoing in FY 2023.
- Compact Development and Oversight. $113.5 million to support ongoing compact development and oversight activities:
- $28 million for compact development funding to address country capacity constraints and support partner country teams during critical stages of preliminary program assessment and to facilitate the development and implementation of projects that meet MCC’s investment criteria, including programs for countries newly selected by MCC’s board as eligible for a compact.
- $85.5 million to support MCC’s due diligence efforts, which provide the agency with sufficient information, analysis and studies to evaluate or appraise projects at the development stage and to effectively oversee performance and assess the results of projects during and after implementation.
- Administrative Expenses. MCC’s budget request also includes $130 million for FY 2023 administrative expenses, including a significant catch-up adjustment to better reflect the ongoing and rising costs of MCC operations and administration and to realign MCC resources with increasingly pressing demands for management and oversight of approximately $7 billion in programs at any given time. This amount includes expected salary increases and inflation costs and modest increases in staffing to support agency efforts to strengthen its focus on diversity, equity, inclusion and accessibility (DEIA); climate; cybersecurity; and accelerating compact development. This budget request also provides for rising overseas expenses and demand for more human resources, technical expertise and increased travel to support MCC’s overseas staff.
In particular, administrative funding will support ongoing work in the following areas, which are critical to MCC’s model and impact:
- Oversight. Delivering on MCC’s rigorous oversight model, including review of compact and threshold programs to enable adjustment of plans to leverage new opportunities, modify activities, or eliminate programs or activities when deemed appropriate.
- Competitive Selection and Economic Analysis. Managing MCC’s competitive selection process, which includes a scorecard of 20 independent, third-party indicators that countries must pass in order to be eligible. These indicators measure a country’s policy performance in the areas of ruling justly, economic freedoms and investing in people. MCC administrative funds will also be used to fund staff and the administration of economic and constraints analyses.
- Evidence and Monitoring and Evaluation. Expanding MCC’s evidence-based and rigorous approach to developing projects and assessing their impact, including publishing MCC Evaluation Briefs and Star Reports, which consolidate critical programmatic information throughout the lifecycle of each compact and threshold program in areas such as performance, sustainability and lessons learned. MCC administrative funds will be used to expand its lessons learned and best practices materials.
- Office of Inspector General. MCC’s budget request includes $4.5 million to provide funds to the U.S. Agency for International Development Office of Inspector General for conducting audits and other engagements of programs and operations in accordance with various statutory standards and authorities.
COVID-19
The health and economic impacts of the COVID-19 pandemic have been devastating globally. Throughout the pandemic, it has been clear that health and the economy are inextricably linked. MCC’s investments have enabled many of its partner countries to better address the impacts of COVID-19, and these investments will be vital to countries’ recovery. MCC programs tend to have indirect but critical impacts on its partner country health systems by tackling the underlying systems that are fundamental and complementary to direct health investments. For example, MCC’s work in the power sector and in water and sanitation indirectly improve a country’s health outcomes.
MCC is exercising the authority granted by Congress to extend existing compacts that have been adversely impacted and delayed by the COVID-19 pandemic. This welcome flexibility provides MCC and its partner countries with the ability to complete critical compact activities and to ensure the sustainability of MCC’s investments. Specifically, MCC has extended compacts in five countries: Benin, Côte d’Ivoire, Ghana, Morocco and Niger.
MCC’s country-led programs are structured to build capacity and invest in long-term, sustainable development—which helps to establish the conditions that will be necessary to promote economic revitalization and job creation once the COVID-19 pandemic subsides.
Build Back Better World
Infrastructure is critical to driving a society’s productivity and prosperity. MCC’s large, predictable, multiyear grants—which have ranged from $65 million to $700 million, with an average of $350 million for five-year compacts—enable the agency to make comprehensive investments in high-quality, values-driven infrastructure that helps meet the tremendous infrastructure needs of its partner countries without adding to country debt burdens. MCC focuses on both physical and institutional infrastructure, taking an approach that integrates institutional capacity building, policy reform and country ownership with core physical infrastructure investments to deliver sustainable public services for communities and drive economic growth. MCC has an 18-year track record of financing the gamut of 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. This approach allows MCC to produce systemic and long-lasting results.
MCC has completed more than 3,000 kilometers of roads, improved the irrigation of more than 200,000 hectares of farmland, and upgraded or built nearly 6,000 kilometers of power transmission and distribution lines. In 2021, building on its track record, MCC elevated three strategic priorities that are relevant to B3W—climate change, inclusion and gender, and catalyzing private investments. The agency also has an emerging portfolio in the data and digital space. Given this strong track record and approach, MCC is well positioned to contribute to the B3W global infrastructure initiative.
Climate
Investing in climate-smart economic development and sustainable infrastructure is critical to respond to countries’ interest in enhancing their resilience to future crises, adapting to the economic fallout from COVID-19, reducing emissions and stimulating growth. MCC has a strong track record of integrating climate change resilience, adaptation and mitigation considerations throughout its investment cycle. Between FY 2015 and FY 2020, MCC devoted $1.7 billion, or about 42 percent of the agency’s program funds, to climate-related activities within economically rigorous compact and threshold programs. These spanned a number of key sectors and included supporting regulatory reforms. Examples include requiring the use of recycled water for industry in Mongolia, investing in climate-resilient agricultural production in Niger, and increasing access to reliable and affordable electricity in Liberia through investment in the rehabilitation of the Mount Coffee Hydropower Plant.
In FY 2023, MCC plans to continue and expand on this important work. For example, the potential program in Mozambique is currently focused on integrated land use management and coastal ecosystem restoration, which involves spatial planning, restoration of mangroves and seagrass areas, and development of scalable partnerships to lay the groundwork for a carbon credit system. Collectively, this work can benefit communities and support ecosystem restoration in areas vulnerable to natural disasters, while also supporting Mozambique’s efforts to incorporate nature-based solutions, ecosystem restoration and landscape management into its planning.
Grant funding; close partnerships with government; and work in critical sectors like energy, water, transportation and agriculture have made MCC highly effective at fostering economic growth in the face of a changing climate.
Diversity, Equity, Inclusion and Accessibility
In FY 2023, MCC plans to deepen its commitment to DEIA. The agency established a new Office of Equal Opportunity, Diversity and Inclusion within its Office of the Chief Executive Officer (OCEO), with a chief diversity officer who reports directly to the CEO. Placing the office in the OCEO will allow MCC to further elevate these efforts within the agency, clarify reporting and improve the information flow. The agency also recently launched a new Executive Diversity Council, which is designed to institutionalize and empower employee feedback and input on diversity issues.
Inclusion and Gender
Promoting inclusion and addressing gender inequities are key priorities for MCC and fundamental to the agency’s mission. With respect to MCC compact and threshold programs, in FY 2023 MCC will reinforce its data-driven model by enhancing its analytical and diagnostic tools to better assess and ensure that the needs of, and potential impact on, poor people, women, youth and other marginalized groups are incorporated into the assessment, selection, design and implementation of MCC programs. These efforts will help such groups overcome financial, legal and cultural barriers that prevent them from fully engaging in their countries’ economies. This approach will better ensure that MCC programs support growth that is broad-based, reinforcing the sustainability of growth and contributing to regional stability.
MCC has also added gender-specific investment criteria to further advance and institutionalize how the agency prioritizes women’s economic empowerment. In addition, MCC is strengthening and expanding its diagnostic tools to better account for inequities—and the ways exclusion can drive constraints to growth—during early program development. This will enhance MCC’s ability to develop and implement projects that advance women’s economic empowerment, and sets the agency on course to address broader issues of inclusion in program benefits.
Catalyzing Private Investment
MCC has been practicing blended finance since its founding, through public-private partnerships (PPPs), grant facilities and investments targeted to catalyze private sector investment. MCC catalyzes private investment through the strategic use of public funds to mobilize private resources in ways that support sustainable, long-term economic development in developing countries. MCC has honed its ability to help its partner countries design, strengthen and harness private financial markets through a range of tools, including capital structure grants, grant facilities, parallel investments, co-investments, PPPs and catalytic investment strategies that increase the impact and sustainability of MCC programs. MCC’s blended finance tools also improve investor confidence and help overcome some of the impediments to private sector investment in challenging markets in partner countries. MCC seeks to target its resources where commercial financing is not available for deployment toward development outcomes.
In FY 2023, MCC will deliver on three new blended finance initiatives that it has been preparing in partnership with the U.S. International Development Finance Corporation (DFC), the Small Business Administration (SBA) and Africa50. American Catalyst Facility for Development is a program developed in collaboration with the DFC that is designed to enable coordinated catalytic investments in MCC’s portfolio. The program will provide strategic grants aimed at crowding in the private sector and maximizing the overall impact of U.S. Government development efforts, with a particular focus on de-risking potential DFC transitions. In FY 2023, MCC will continue to collaborate with the SBA to create the Innovation Technology Program to strengthen the role of innovation and technology in MCC compacts while promoting more business-centric, market-based solutions. Finally, MCC has been collaborating with Africa50 to launch the Millennium Impact for Infrastructure Accelerator (MIIA) Africa, an independent project preparation facility designed to holistically identify, develop and finance bankable, sustainable infrastructure projects in the power, water, sanitation, health, education and transport sectors, especially those that are harder to prepare and fund. Through this work, MCC seeks to contribute to an expanded and enhanced capacity among U.S. Government agencies to create jobs, expand markets and reduce poverty through economic growth, and to support the effective transition of countries in the developing world from aid to trade and private sector–led economic growth.
MCC@20
The global landscape has changed dramatically since MCC’s founding in 2004, with increased global political and economic volatility, vulnerability and competition directly impacting MCC’s core mission to reduce poverty through economic growth. To meet this challenge, and with MCC’s 20th anniversary in sight, MCC has launched a strategic reflection, MCC@20, to define how the agency can meet the challenges and opportunities of this moment while building on what makes MCC’s model distinct and valuable to its partners and the U.S. Government—from competitive selection to country ownership to accountability. MCC has already demonstrated a capacity to deliver tangible economic impact and to expand and deepen the United States’ partnership with a wide range of countries. As the agency looks forward, MCC is assessing both where and how it works to identify opportunities to maximize its impact. These efforts have already informed the proposed legislative changes included below and will continue into FY 2023. MCC anticipates further engagement with congressional and other stakeholders as the MCC@20 strategic assessment continues.
Proposed Legislative Updates
MCC is seeking three legislative changes that would increase the agency’s impact and better enable it to flexibly fulfill its congressionally mandated mission to reduce poverty through economic growth. The three proposed changes are as follows:
- Removing the cap on 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 cap limits MCC’s ability to flexibly support eligible countries and should be removed to enable the agency to rightsize compact programs based on project opportunities and the potential to reduce poverty through growth, irrespective of country income classifications.
- Allowing threshold programs after compacts. MCC threshold programs incentivize candidate countries to demonstrate their commitment to just and democratic governance, economic freedom, and investments in their people. Current legislation prohibits threshold programs with countries that previously had a compact, limiting the countries with which MCC is able to engage, regardless of changes in the countries’ policy environment in intervening years. For example, some countries that had a compact subsequently became ineligible for MCC assistance. These countries then began to recover politically, and threshold programs would have been of significant assistance to the recovery of these countries. Removing the limiting language also would allow for MCC to engage with a broader range of countries and build a larger pipeline of potential projects.
- Updating MCC’s Annual Report requirements to decrease the reporting burden and allow the agency to better showcase its accomplishments each fiscal year. The proposed language would amend MCC’s authorizing statute to make the report due to Congress the third Friday in December each year, rather than March 31 as it is currently, and to assign the function of submitting the report to MCC’s CEO, in line with the practice in similar agencies.
Consistent with MCC@20, the agency is also reviewing the ways in which the pool of countries that can be considered candidates for MCC compact assistance affects MCC’s impact on poverty reduction through economic growth. These countries are legislatively defined in relation to a specific income threshold. MCC is examining whether there are additional considerations, and thus legislative requests, that would better reflect the economic contexts and vulnerabilities of the types of countries with which the agency has traditionally worked.