Every December, MCC’s board of directors meets to select the set of countries eligible for MCC’s compact or threshold programs. And each year, before the board meeting, CGD’s US Development Policy Initiative publishes a discussion of the overarching issues expected to impact the decisions alongside its predictions for which countries will be selected. Here’s what to watch for at the upcoming MCC board meeting on December 19.

The Overarching Questions

How might the prospect of a historically low budget constrain decision-making?

Budget uncertainty is an ever-present feature of MCC’s eligibility decisions since—in recent years—the appropriations process has rarely been finalized until well after the December meeting. But while the current appropriations limbo is nothing new, this year MCC is looking at the potential for a budget lower than any the agency has ever seen. The Trump administration’s FY2018 budget request slashed international affairs spending, and though MCC was spared the severe cuts dealt to other development accounts, the request of $800 million—if enacted—would be the agency’s lowest-ever appropriation. It might not end up there. The House Appropriations bill provided the $800 million included in the president’s request, but the Senate came in at $905 million, level funding compared to FY2017.

With up to three compacts expected to be approved in FY2018 and up to four more in the pipeline for subsequent fiscal years, competition for funds will be tight. MCC cannot afford to select all 31 countries that pass the scorecard (nor would all be top choices for reasons of size and policy performance). As always, the board will have to prioritize. The average number of new first or second compact selections in a year is three. This year may see fewer.

How will the new board interpret MCC’s good governance mandate?

This will be the fourth board meeting under the Trump administration, but only the second with political appointees in four of the five public positions (no nominee has been named to lead MCC), and the first to deal with country eligibility. Of course, this isn’t unfamiliar territory for all the board members. USAID Administrator Mark Green served five years on the MCC board in one of the four slots reserved for private members. The two current private members are veterans too. But the two other private sector slots remain unfilled, giving the administration more weight than usual in the board’s decisions.

This year’s selection decisions will require the board to make judgments about one of the core precepts of MCC’s model—that policy performance matters. MCC bases its eligibility criteria on governance quality to reward countries taking responsibility for their own development, create incentives for reform, and (potentially) increase the effectiveness of MCC investments. The eligibility criteria are also intended to depoliticize eligibility decisions, in recognition that blended objectives—supporting geostrategic partners and promoting development—can sometimes muddle development results. In practice, US geopolitical interests have certainly influenced the direction of some eligibility decisions, but rarely—if ever—trumped policy performance. The question at this year’s meeting will be how the MCC board, under the Trump administration, weighs good governance in the spirit of MCC’s founding model against the importance of a bilateral relationship, a factor the agency’s model seeks to downplay.

This year, the board faces decisions about large and/or strategically important countries—for example, the Philippines (the decision to watch this year) and Bangladesh—that come with important concerns about civil liberties and human rights. On the flip side, the board will need to define the next stage of MCC’s relationship with several countries that are already engaged in a threshold program or compact development that are smaller and less strategically important—for example, Lesotho, Timor-Leste, and Togo.

The Trump administration has provided some insight into its broad views on the issues at the heart of these eligibility decisions. For instance, President Trump has been largely silent (and at one point congratulatory) about human rights concerns in the Philippines. And the FY2018 budget request’s gutting of foreign assistance, which included zeroing out development-focused aid for 37 countries, suggests limited appetite for spending scarce development dollars where US strategic and economic interests are weaker. But these clues are well outside the context of MCC, so how the board considers good governance versus bilateral importance for MCC eligibility is unclear.

A Brief Overview of How MCC’s Selection Process Works

Here are four key things to know. For more detail, see MCC’s official document or my short synopsis (section “How the Selection Process Works,” p. 2-4).

  • MCC’s country scorecards provide a snapshot of a country’s policy performance compared to other low- and lower-middle-income countries. To “pass” the scorecard, a country must meet performance standards on 10 of the 20 indicators, including the Control of Corruption indicator and one of the democracy indicators (Political Rights or Civil Liberties).
  • The scorecard is only the starting point. The board also considers supplemental information about the policy environment, as well as whether MCC could work effectively in a country, and takes into consideration how much money the agency has.
  • Once a country is selected as eligible for a compact, it must typically be reselected each year until the compact is approved (usually 2-3 years).
  • A country can be considered for a second compact if it is within 18 months of completing its current program. In decisions about subsequent compacts, MCC looks for improved scorecard performance and considers the quality of partnership during the first compact.

Countries that Pass MCC’s FY2018 Scorecard Criteria

Low Income Lower Middle Income
Bangladesh Nepal Bhutan Micronesia, Fed Sts.
Benin Niger Cabo Verde Mongolia
Burkina Faso São Tomé and Principe Georgia Morocco
Comoros Senegal Indonesia Sri Lanka
Côte d’Ivoire Solomon Islands Kiribati Tunisia
Ghana Tanzania Kosovo Vanuatu
India Timor-Leste
Lesotho Togo
Liberia Zambia
Malawi

 

MCC Eligibility Predictions for FY2018

Below are my predictions for FY2018 MCC eligibility. I don’t cover all 83 countries since around two-thirds of them have low enough scorecard performance to make them unlikely candidates. Instead I restrict my analysis to:

  • All countries that pass the scorecard criteria, except those not in the running for any kind of eligibility decision. These are Benin, Côte d’Ivoire, Georgia, Ghana, Liberia, Morocco, Nepal, and Niger, all of which are currently implementing compacts and are not within the timeframe for subsequent compact eligibility.
  • Countries that don’t pass the scorecard but for which a decision about continued eligibility is expected.
  • Countries that don’t pass the scorecard but come close enough to be considered for threshold eligibility.

Click on any country name to read a brief analysis and rationale for my prediction.

First compact eligibility, new selection

Timor-Leste (possibly)

Timor-Leste has a long and complicated history with MCC. It was selected as eligible for a compact in FY2006 but never finalized an agreement for unstated reasons—likely related to political unrest as well as repeatedly failing the Control of Corruption indicator (due mostly to its move from the low-income group to the more competitive lower-middle-income group). Instead, as somewhat of a consolation, MCC moved Timor-Leste to the threshold eligibility in FY2009, and the country implemented a program that concluded in 2014.

Last year, Timor-Leste (once again classified as low income) passed the scorecard for the first time in a decade, and the board selected it for a second threshold program. Now that Timor-Leste passes handily for a second year in a row, the board could opt to move Timor-Leste up to compact eligibility.

It’s not a sure thing, though. First of all, Timor-Leste is small and remote, and it’s hard to tell if the new board will find it appealing to spotlight the tiny half-island nation, especially when there are few other prospective new compact countries to pick this year. Timor-Leste also has a large petroleum sovereign wealth fund, raising questions about the country’s need for grant funding. And on top of that, its per capita income puts it near the threshold separating the low-income category from the more competitive lower-middle-income category. Timor-Leste may well bump into the higher category again soon, and if it does, it will almost certainly fail the scorecard again.

That said, the board also likely recognizes that Timor-Leste is a very poor country, despite the oil wealth that has made it nominally middle income. Nearly half the population lives under $1.90 a day, and its median household income per capita is just $2—on par with countries like Benin, Niger, and Tanzania. Furthermore, a dip in oil prices and declining production has hit Timor-Leste hard and presents risks for future fiscal sustainability. After 12 years of a tumultuous partnership, this might be the year MCC restarts compact eligibility with Timor-Leste.

 

Second compact eligibility, new selection

Malawi (possibly)

Malawi passes the scorecard for the 11th year in a row. When the board meets next week, the country will be nine months out from completing its compact and could be considered for second compact eligibility. While it’s a possible choice, there are a couple of factors that may make the board think twice. First, the last year of compact implementation is often the most intensive, as countries push to complete the program before the five-year time clock runs out. MCC may prefer that Malawi focus its finite capacity on successful implementation, without the distractions that come with developing a new program. In addition, while Malawi has an excellent record of passing the scorecard, second compact eligibility demands a higher bar and the expectation that a country will demonstrate improved scorecard performance, especially in the areas of control of corruption and democratic rights. Here, the case for Malawi is harder to make. Its Control of Corruption score has declined some in recent years, on the heels of a major 2013 corruption scandal that led donors to withhold funds. While this isn’t a statistically significant decline, it is noteworthy that Malawi has dropped over 15 percentage points in rank in the last five years and is now hovering close to the pass/fail threshold. Subsequent scandals have unfolded since 2013, and efforts to investigate them have faced hurdles. Arrests of protestors and treason charges against opposition figures also merit attention, as do the current government’s trumped up charges against a former president. With few contenders for new first or second compacts this year, Malawi may be in the running, but it is not a clear-cut choice.

Zambia (possibly)

Zambia passes the scorecard for the 10th year in a row. Its current compact will end in November 2018, almost a full year from next week’s board meeting. While this puts it within the 18-month window for second compact consideration, it’s not an obvious choice this year. MCC may prefer not to distract from the final, intensive year of compact implementation with preparations for a new program. It can also be hard to fully gauge the quality of the partnership, one of the criteria for second compact eligibility, when there is still a (very busy) year to go. Not only that, Zambia may not meet the higher bar for improved scorecard performance. Its Political Rights indicator has shown substantial decline due to a restrictive environment for political opposition before the country’s 2016 general elections, and increased restrictions on freedom of expression and demonstration. Because there are few compact contenders this year, and because Zambia is within the window for second compact selection, it will probably be under serious consideration. However, it seems more likely that MCC will wait to reassess the political environment and the quality of compact implementation after the current compact concludes.

 

Threshold program, new selection

The Gambia (probably)

MCC picked the Gambia for compact eligibility back in FY2006, but suspended it less than a year later due to concerns about the policy environment. A decade later, MCC and the Gambia seems set for a do-over. This year, the only criteria that keep the Gambia from passing the scorecard is the democracy hurdle. And there is reason to believe this may soon change. The indicators reflect the events and conditions of 2016, a year that culminated in the then president—who had been in power for 22 years—refusing to accept the results of an opposition electoral victory. In January, he finally agreed to leave office, leading to the country’s first transfer of power by popular election. The party of the new president won a sweeping victory in the mid-2017 parliamentary elections, which could facilitate further reforms. With a failing scorecard, the Gambia isn’t a contender for a compact yet, but it could be an attractive country for a threshold program. MCC has a strong presence in West Africa, which it has long been eyeing for regional opportunities. The agency is likely interested in testing how a partnership with the newly democratic Gambia would go, while watching the policy trajectory of the new government.

Bangladesh (possibly)

For seven years running, Bangladesh has either passed (twice) or come very close to passing the scorecard, falling just short on the Control of Corruption indicator. However, MCC has always decided against compact or threshold eligibility for Bangladesh. Its inconsistent passing of the Control of Corruption indicator has made it a risky bet for compact eligibility. And more broadly, MCC undoubtedly has had a watchful eye on constraints to political rights, civil liberties, and press freedom in Bangladesh. There have been no major advances in these areas that would suggest this year presents a particular opportunity for eligibility. Just the opposite, in fact, with a government crackdown on labor protestors earlier this year and reports that press freedom is increasingly under threat. General elections are also due at the end of next year, and Bangladesh has a history of political violence around its electoral cycles.

That said, MCC has been thinking about possible regional approaches in South Asia, and Bangladesh is a major player in the region. The US government may also be particularly interested in supporting Bangladesh at this time, given its role on the front lines of the Rohingya crisis, having received over a million refugees from neighboring Myanmar.

The board is almost certainly giving Bangladesh some serious thought this year. Though its governance issues raise questions about its fit with MCC’s good governance mandate, the board could consider the country for threshold program eligibility. A threshold program would allow work to begin on initial phases of a partnership, but afford MCC time to watch how next year’s elections and the broader human rights context unfold. One important consideration, however, is that threshold programs are small (around $20 million over three or so years), and therefore may not get a lot of attention in Bangladesh, which receives over $4 billion in foreign aid each year. So even compact consideration may not be entirely off the table. Either way, Bangladesh isn’t a highly likely pick. But it shouldn’t be ruled out.

 

First/second compact eligibility, reselection to continue compact development

Burkina Faso (probably)

Burkina Faso was initially selected as eligible for a second compact last year. It passes the scorecard for the seventh year in a row and has been working with MCC on a constraints to growth analysis that will inform the focus of the compact.

Lesotho (probably)

Lesotho—which holds the distinction of being the only current candidate country to pass the scorecard every single year since MCC’s inception—was first selected for second compact eligibility in FY2014. It’s had a bit of a rough road since then. For the last two years, the board deferred a reselection decision due to uncertainty surrounding how the country would address serious concerns about the behavior of the military, including allegations that the armed forces had been active in stifling the opposition and those loyal to the prior regime. Just before last year’s selection-focused board meeting, there were early signs of progress in Lesotho, and the board decided to see how well they would be implemented over the coming year. Instability still persists in the mountain kingdom, but the government of Lesotho has taken steps that demonstrate the seriousness with which it is taking the Southern African Development Community (SADC)’s recommendations to address its challenges. It has launched a reform process, and President Thabane recently requested a SADC stabilizing force to provide protection to the government as it implements the regional body’s recommendations to arrest and try military officers and tackle security sector reforms. The board will probably take a positive view of these recent steps and give Lesotho the green light to proceed with compact development.

Mongolia (probably)

Since it was first selected for a second compact in FY2015, annual eligibility determinations for Mongolia have been anything but straightforward. In FY2016, Mongolia’s per capita income briefly rose above the ceiling for MCC candidacy, taking it out of the pool of country scorecards. Since it wasn’t a candidate country, the board couldn’t reselect it; however, they did reaffirm the agency’s commitment to continuing to develop a second compact with Mongolia. Last year, Mongolia was back in the candidate pool, but failed the Control of Corruption hurdle. The board wisely reselected it anyway, recognizing that the failure was not indicative of an actual policy decline. There are no such hitches for Mongolia this year, which passes the scorecard once again.

The Philippines (hard to predict, but unlikely)

As I explain in more detail here, the Philippines decision is the one to watch this year. The Philippines, an important strategic ally for the United States, has had a long partnership with MCC. It had a threshold program from 2006 to 2009, a compact from 2011 to 2016, and was selected as eligible for a second compact in FY2015. But since the inauguration of Filipino president Rodrigo Duterte in mid-2016, some serious questions have emerged about whether the Philippines continues to meet MCC’s good governance criteria. In particular, there are concerns about Duterte’s support for the extrajudicial killings of thousands of people suspected of involvement in illicit drug activity. This issue—in addition to the Filipino president’s inflammatory anti-American (and specifically anti-Obama) rhetoric—led the board to defer a decision about whether to reselect the Philippines last year. A vote up or down would have constituted a major foreign policy decision just weeks before the new Trump administration would take office. Over the past year, Presidents Trump and Duterte have developed an amicable relationship. Trump recently returned from a successful trip to the Philippines, and, over the course of his first year in office, he has been largely silent about (or arguably supportive of) the extrajudicial killings.

Another factor the board will have to weigh is that the Philippines doesn’t pass the scorecard this year, failing the critical Control of Corruption indicator. While this might appear important, it should really be less of a concern than the actual, identified human rights issues described above. The decline in the Philippines’ score is slight (not remotely significant), and the country has long ranked near middle of the pack on this indicator, fluctuating above and below the passing threshold. Its failing score is not a signal that it has suddenly become more corrupt. It does, however, offer an “easy out,” giving the board a way to curtail the relationship with the Philippines without being explicit about the human rights concerns the Trump administration has chosen to downplay. While “easy,” it’s not the right rationale. Instead, the board should refer to MCC’s criteria that countries must meet a higher bar on the scorecard for a second compact. The downward movement on the Civil Liberties indicator (reflecting, in part, the drug-related killings) suggests the Philippines probably doesn’t clear that hurdle.

The Philippines is a hard prediction to make. On the one hand, the US government is undoubtedly sensitive about its relationship with an important geostrategic ally whose current leadership has responded to US criticism by threatening American interests and edging closer to China. On the other hand, it’s hard to make the case that the Philippines meets MCC’s good governance standards for a second compact. I’m predicting that the board will ultimately vote not to reselect the Philippines this year. A different outcome would not be surprising. But it would be unfortunate for what it would say about how the current board interprets MCC’s good governance mandate.

Senegal (probably)

Senegal was initially selected as eligible for a second compact in FY2016. It passes the scorecard for the 11th year in a row and has been working with MCC to develop a program in the energy sector.

Sri Lanka (probably)

Sri Lanka was selected for threshold program eligibility in FY2016 and then—before signing a threshold program—for compact eligibility last year. Since then, it’s been developing a compact on an accelerated timeline thanks to the constraints to growth analysis that it conducted as part of threshold program eligibility. The proposed programs will focus on regional transportation and access to land.

Tunisia (probably)

Tunisia was initially selected for a compact last year. It passes the scorecard for the second year in a row and has been working with MCC on an updated constraints to growth analysis that will inform the focus of the compact.

 

Countries that pass the scorecard but are unlikely to be selected

Bhutan, Comoros, Kiribati, Federated States of Micronesia, São Tomé and Principe, Solomon Islands, and Vanuatu

All have passed the scorecard in several prior years but have been passed over for eligibility, presumably because of their small size (all have populations under a million). Though MCC does not have an official minimum size requirement for compact eligibility, the board has demonstrated a preference against the selection of small countries.

Cabo Verde

Cabo Verde is also small (population 540,000), but, unlike the small countries listed above, it has had a long partnership with MCC, completing its second of two compacts in November this year. If the board were to select Cabo Verde again it would be for a third compact. MCC absolutely should be given the green light to pursue third compacts with select partners. However, because not all MCC stakeholders (including some members of Congress) buy into this idea wholeheartedly, it would be risky for MCC to pick tiny Cabo Verde as the vanguard of a potential new cohort of third compact partners.

India

India regularly passes the scorecard, but neither it nor MCC—not to mention many members of Congress—think a compact is an appropriate tool for the bilateral partnership. India is, after all, the world’s seventh-largest economy and a foreign aid provider, not to mention its over $300 billion in foreign exchange reserves. MCC and India have, however, discussed how they might collaborate on MCC’s programming in South Asia, including in Nepal and Sri Lanka.

Indonesia

Because Indonesia’s compact ends within 18 months, it could be considered for a second compact. It’s an unlikely choice, however. This is only the second year that Indonesia has passed the scorecard (the other time was in FY2009, the year it was selected for its first compact). This makes it a risky bet since it’s far from clear that it would continue to pass with any consistency in the future. In addition, the ability for an MCC compact to affect poverty reduction and growth is relatively limited in the world’s fourth biggest country and 16th largest economy, which gets trillions of dollars of foreign direct investment each year. That said, Indonesia is a strategic partner of the US government. If it continues to pass the scorecard for a few years, a more serious conversation about a second compact might arise in the future. But not this year.

Kosovo

Kosovo passes the scorecard for the second time this year. When it first passed, in FY2016, it was selected for compact eligibility. Last year, however, Kosovo was downgraded to threshold program eligibility due to a failing score on the Control of Corruption indicator. Though MCC cited Kosovo’s troublesome trajectory on the indicator as rationale for the shift, there was zero actual evidence of a real policy decline. The fact that it passes again this year (with its highest score since independence) makes MCC’s end-of-2016 professed dissatisfaction with Kosovo’s indicator performance appear, retrospectively, even more off base. Kosovo just signed a $49 million threshold program (the second largest in MCC history), however, so MCC probably won’t choose it for a compact again this year. But the Kosovo story amplifies the need for MCC to change its approach to the Control of Corruption indicator for reselection decisions.

Tanzania

Tanzania was selected for second compact eligibility in FY2013, but MCC suspended the partnership in 2016 based on the flawed and unrepresentative conduct of a 2015 election in Zanzibar, as well as moves by the government to stifle dissent and control information. There has been no appreciable improvement in these areas, so the board is unlikely to reselect Tanzania this year.

Togo

Togo passes the scorecard for the second year in a row. It was selected as eligible for a threshold program in FY2016 and is close to finalizing a program focused on policy reform in the information/communications technology and land sectors. However, at the board meeting in September, MCC flagged concerns with the political rights and civil liberties environment in Togo and indicated that it would not sign the threshold program agreement until there were clear signs of improvement. This suggests that Togo will not be moved up to compact eligibility this year.