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Sarah Rose is a policy fellow at the Center for Global Development. Her work, as part of the Center’s US Development Policy Initiative, focuses on US government aid effectiveness. Areas of research and analysis include the policies and operation of the Millennium Challenge Corporation (MCC), the use of evaluation and evidence to inform programming and policy, the implementation of country ownership principles, and the process of transitioning middle income countries from grant assistance to other development instruments.
Previously, Rose worked for the United States Agency for International Development (USAID) in Mozambique as a specialist in strategic information and monitoring and evaluation. She also worked at MCC, focusing on the agency’s evidence-based country selection process. She holds a Masters degree in public policy and a BS in foreign service, both from Georgetown University.
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 IncomeLower Middle Income
Micronesia, Fed Sts.
São Tomé and Principe
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 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 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 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.
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—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.
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 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 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 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 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.
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 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 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 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.
On the heels of President Trump’s trip to the Philippines, a bilateral foreign policy question looms. Next month, the Millennium Challenge Corporation’s board of directors will meet to select the set of countries that will be eligible for the agency’s large-scale grant programs. One of the decisions on the table will be whether to continue the partnership with the Philippines. The board needs to formally reselect the country this year for program development to proceed. The Philippines has been a long-term partner for MCC, having completed a threshold program (2006–2009) and a compact (2011–2016). In late 2014, MCC gave the Philippines the green light for the next step, selecting it to start developing a second compact. However, over the last year and a half, questions have emerged about whether the Philippines continues to meet MCC’s good governance criteria. In one month, MCC and its board will have to answer those lingering questions.
For background on MCC’s selection process, visit MCC’s official document or my short synopsis (see section “How the Selection Process Works,” p. 2-4).
The Philippines and the United States have long been strong allies. Close military and security cooperation, substantial trade and investment, and immigration have contributed to what both countries have typically viewed as an overwhelmingly favorable relationship. The inauguration of President Rodrigo Duterte in mid-2016, however, created something of a rift. At the outset of his tenure, Duterte engaged in inflammatory anti-American (and specifically anti-Obama) rhetoric, threatening to “break up with America.” This came largely in response to concerns voiced by President Obama and others over Duterte’s support for the extrajudicial killings of thousands of individuals suspected of involvement in illicit drug activity. When MCC’s board faced the decision last year of whether to give the Philippines the go-ahead to continue working toward a second compact, it deferred, opting to take a wait-and-see stance rather than a forward-leaning foreign policy decision. That decision, which could have been interpreted as either a stamp of approval or a punitive action with respect to a significant ally would have occurred just weeks before the new Trump administration was to take office.
Over the past year, anti-American rhetoric has waned as Presidents Trump and Duterte have forged a more friendly relationship. And Trump has been virtually silent on the human rights concerns expressed by the previous administration—even telling Duterte during an early phone call that he was doing an “unbelievable job on the drug problem.”
This sets up the MCC board for a tough call. Should good governance-focused MCC take a stand on the Philippines’ serious human rights concerns even though the White House has been ambivalent, at best, about the issue? How much will the answer to this question be informed by pressure to treat delicately an important geostrategic ally whose current leadership has responded to US criticism by threatening American interests and edging closer to China?
In making that decision, another important factor will come into play. The Philippines doesn’t pass MCC’s scorecard criteria this year, falling just short on the critical Control of Corruption indicator. In some ways, that may seem convenient. Pointing to a failing Control of Corruption indicator would theoretically give the board cover to pull back MCC’s engagement with the Philippines without having to (a) express concerns about other governance issues and (b) awkwardly put MCC, as opposed to the State Department, at the leading edge of that conversation.
As tempting as that rationale might be, it’s also wrong. The Philippines’ failing score does NOT mean that the country is suddenly much more corrupt. In fact, the change in score is slight and not even close to statistically significant. The simple fact is that the Philippines has always been near the middle of the pack on this indicator, fluctuating above and below the passing threshold (in its eight years as a lower-middle-income country, it’s passed the Control of Corruption indicator three times). Simply put, its measured corruption performance this year is not meaningfully different than the year it was selected.
As I’ve arguedmanytimes, MCC should not necessarily curtail a country’s compact development process just because it fails the Control of Corruption hurdle. For corruption to be a valid justification, MCC should be able to point to a concrete decline in actual policy—not just in score. MCC’s official guidance suggests this is the agency’s approach, as well, noting that the board should use its judgement—informed by its understanding of data limitations—to interpret what the scorecard says about policy performance. Unfortunately, the board’s interpretation of the data has sometimes been more rigid than the indicators’ imprecision allows. For instance, the board decided not to reselect Benin, Sierra Leone (FY2014), and Kosovo (FY2017) for compact eligibility when they narrowly failed the Control of Corruption indicator, even though MCC acknowledged (for the former two at least) there had been no deterioration in policy. Sierra Leone and Kosovo were relegated to MCC’s much smaller threshold program. Benin was reselected for compact eligibility the following year, but only after compact development was slowed by the earlier decision. Earlier this year, I was hopeful that MCC would formalize an approach to corruption that would—for decisions about whether to reselect countries to continue compact development—reduce the need for the board to trade off appearing to “play by the rules” (countries must pass the Control of Corruption hurdle) and the imperative to use data wisely. The current guidance isn’t explicit about this, leaving open the possibility that the board could use the Control of Corruption indicator as an “easy out.” I hope that’s not the route they’ll take.
I hope that instead, the board gives greater scrutiny to other aspects of the Philippines’ scorecard data. For eligibility for a second compact, MCC is clear that there is a higher “good governance” bar. The agency looks not just for a passing scorecard, but for improved performance during the course of the previous compact. In the past, I’ve highlighted why this can sometimes be an impractical criterion, but for the Philippines, there are some signals the board should heed. Notably, while the Philippines still easily passes the Civil Liberties indicator, Freedom House (the indicator’s source) gave the Philippines a “downward trend arrow” due to the extrajudicial killings associated with the war on drugs, as well as threats against civil society activists. The Philippines also fails the Rule of Law indicator (which covers events of 2016 and earlier). The decline is slight, and, given its longstanding middle-of-the-pack rank, it has failed this indicator before. But it will be useful for MCC and the board to understand what is behind the decline and how assessments have changed over the past year.
All this makes the Philippines the decision to watch at MCC’s upcoming December board meeting. In the balance are not only the fate of the Philippines’ compact, but also important questions of how the new board under the Trump administration interprets MCC’s good governance mandate and whether it will use data wisely.
Note (December 4, 2017): The data in this blog present the first release of DRM-coded data in the OECD’s Creditor Reporting Service. Please keep in mind the following caveats. The Addis Tax Initiative—and by extension the OECD data—focus on domestic revenue mobilization; the data don’t capture everything within the broader category of domestic resource mobilization (e.g., strengthening and borrowing from domestic capital markets). Furthermore, because this is a relatively new data classification, the comprehensiveness and accuracy of the data are evolving. There are some known gaps in the data presented below. Bottom line, however, we’re pleased a framework now exists to track US (and other donor) investments in DRM; we hope those reporting data will contribute to quality improvements going forward.
Domestic revenue mobilization (DRM) seems set to be a priority area for the US Agency for International Development (USAID) under Administrator Mark Green. In line with emerging international and domestic consensus on the importance of DRM, Administrator Green hasrepeatedly highlighted the importance of helping countries mobilize their own domestic resources. Furthermore, DRM, which aims to help partner countries better self-finance their own development priorities, is a promising tool for helping select middle-income countries transition away from USAID’s grant-based assistance, another statedpriority for Administrator Green (stay tuned for forthcoming research on transition from Sarah Rose and Erin Collinson).
DRM, which supports strengthened tax policy and administration, is not a new objective for US foreign assistance. For many years, USAID, the Millennium Challenge Corporation (MCC), and the Treasury Department’s Office of Technical Assistance (OTA) have been working with countries to improve tax collection, customs capacity, public financial management, and the like.
The challenge has been in tracking US (and other donors’) support for DRM activities. Historically, there has been very little data on the amount of assistance going to DRM, but this is starting to change. The 2015 Addis Tax Initiative (ATI) provided the first framework to track donors’ support for DRM activities in a systematic manner through the OECD’s Creditor Reporting Service. ATI used this data in its first Monitoring Report, released in July. While the data only covers projects in 2015 so far, it contributes to a better understanding of what US aid agencies are doing in the DRM space and where they are working. If the United States is looking to step up assistance in this area, it will be instructive to understand the landscape of current efforts.
The United States is the second-largest donor to DRM
The United States is the second-largest donor to DRM, behind the United Kingdom. Other major donors include Germany, the World Bank’s International Development Association (IDA), and Norway.
USAID leads US DRM efforts
In 2015, the United States delivered $37 million in DRM-focused assistance in 32 countries. USAID contributed the most, disbursing nearly $25 million, followed by MCC ($8.2 million), Treasury ($3.7 million), and the US Trade and Development Agency (a single $8,000 feasibility study in Pakistan).
The type of engagement varies by agency. MCC funded comparatively larger projects, with an average project size of $2.1 million across four projects. On the other end of the spectrum, the average size of the 40 Treasury projects was around $9,000. USAID’s 37 projects had an average cost of $671,000.
The majority of US assistance to DRM (66 percent) is delivered as project-type interventions—for example, training officials, modernizing IT and other equipment, supporting public awareness campaigns and taxpayer outreach, and modernizing tax collection infrastructure. Another 27 percent of DRM funds support US advisors to deliver in-country technical assistance (mostly through Treasury). Additionally, USAID contributed a small fraction (under $1 million) of assistance to multilateral institutions.
The Philippines and Afghanistan are top recipients of US DRM assistance
The United States provided DRM assistance to 32 countries in 2015. Of the total US spending on DRM that year, 40 percent went to low-income countries, 44 percent to lower-middle-income countries, and 6 percent to upper-middle-income countries—which broadly tracks the distribution of the US government’s overall development aid allocation by income category.
Consistent with the models of each agency, the MCC is the most focused of the agencies. In 2015, MCC’s DRM projects were limited to only two countries, with one, the Philippines, dominating. By contrast, the work led by USAID and OTA was dispersed more widely. USAID worked in 14 countries, spending an average of $1.8 million per country. Treasury worked in 19 countries, spending an average of only $197,000 per country.
Recipients of US aid to DRM, 2015
Considerations for expanding US contributions to DRM
As the United States seeks to refine and possibly ramp up its approach to DRM, this analysis points to several considerations that US foreign assistance agencies should think through:
What is the role of US aid agencies vis-à-vis other donors? The United States is a significant donor to DRM efforts—but it’s not the largest. Given the substantial efforts of many other bilateral and multilateral donors—including the IMF’s Tax Policy and Administration Topical Trust Fund and the OECD’s Tax Inspectors Without Borders—the United States should a) identify how best to support multilateral efforts, and b) establish its comparative advantage in this area vis-à-vis other actors in the space.
How can US agencies better coordinate DRM efforts to maximize effect? Each of the three agencies contributing to DRM efforts has its own approach. MCC funds substantial partner country-identified interventions in a small number of countries. OTA sends financial advisors to work in partner country governments on revenue policy and administration and/or budget and financial accountability. USAID covers a wide array of goals and instruments, generally focused on strengthening revenue administration, assisting on tax reform, and encouraging a culture of tax compliance, and often covers a wide range of smaller interventions. The agencies do coordinate with one another; both MCC and USAID fund OTA’s work, for example. Continued focus on coordination will remain necessary to maximize effectiveness.
Where should the United States focus increased assistance? US agencies operate DRM projects in a range of countries, from upper-middle-income countries like Tunisia to fragile, low-income countries like South Sudan. For countries at the higher-income end of the spectrum, DRM could be particularly useful as part of a strategy to transition partners away from traditional, grant-based foreign assistance by building their capacity to self-finance their development objectives. For small, fragile states, DRM assistance can lay the groundwork for other reforms, like state-building. In all cases, DRM efforts must be undertaken with due attention to the risks of overburdening poor people. A study in the Democratic Republic of the Congo found that the real tax rate on low-income Congolese is 40 percent of their wealth. And CGD non-resident fellow Nora Lustig found that the extreme poverty headcount ratio may actually be higher after taxes and transfers in some countries than before.
Since his first day on the job two months ago, Mark Green has emphasized his commitment to improving the efficiency and effectiveness of USAID. In charting the agency’s path toward these goals, he will weigh a variety of reform and redesign proposals and gather input from a wide range of stakeholders. Regardless of what the final reform plan looks like, if Administrator Green is serious about enhancing USAID’s efficiency and effectiveness, one of his priority areas should be improving how the agency uses evidence to inform its policies and programming. In the absence of attention to learning more about what works and applying these lessons to the agency’s work, the effectiveness of any reform or redesign effort will ultimately fall short of its potential.
The upcoming USAID-led Evidence Day on September 28 at the Ronald Reagan Building (part of Global Innovation Week) provides a perfect opportunity for Administrator Green to spell out his plans to prioritize the role of evidence at USAID. In a new CGD Note, Advancing the Evidence Agenda at USAID, Amanda Glassman and I offer some suggestions. After characterizing the constraints the agency faces to better generation and use of evidence, we propose eight recommendations to address them. In particular, we urge USAID to:
Elevate and consolidate the evidence agenda with the establishment of a new unit: Evidence, Evaluation, and Learning (EEL)
Create incentives for improved evaluation quality through a public scoring system
Focus on synthesizing data for greater accessibility and use
Streamline reporting requirements to allow greater focus on more useful evidence
Evaluate staff performance on evidence use
Adjust staffing choices and opportunities to better emphasize skills in evaluation
Bake evidence-based programming into the procurement process
Continue to support and invest in external organizations’ contributions to learning
As Administrator Green starts his term, he should consider how he wants USAID’s results characterized at the end of his tenure. Will he point to numbers of people trained, or amounts of products purchased? Or will he be able to describe the attributable difference that USAID made to the people the agency is committed to help? With a renewed commitment to evidence, evaluation, and learning at the highest levels, he can edge the agency toward the latter, far more compelling narrative.
At the heart of the Millennium Challenge Corporation (MCC) is a focus on good governance. The agency is known—and broadly liked—for its selectivity, choosing only relatively well-governed countries for its large five-year, growth-focused grants (or “compacts”). The idea behind the focus on good governance was to reward countries taking responsibility for their own development, create incentives for reform, and potentially increase the effectiveness of MCC investments. Of all the governance criteria MCC assesses, none is as singularly important as corruption, which, historically, has weeded out more countries for eligibility than any other individual factor. It is, however, difficult to measure with precision, which can (and has) lead to poor decisions when interpreted too rigidly, resulting in cutting off, purely on the basis of indicator rules, compact partnerships with countries that have had no demonstrable change in their anticorruption environment. If you care about corruption, this isn’t the way to go about emphasizing that.
While MCC has long been aware of this problem, it is finally poised to formally address it. As MCC flagged for its board of directors in June, the agency is considering options for adjusting its approach to the corruption criteria. Though any change would be small, it would, if done well, eliminate the periodic need to trade off “playing by the rules” and the imperative to use data wisely and responsibly. The question that remains is how to craft a guideline that remains rule-based but provides meaningful assessment of country performance, is free of perverse incentives, and allows MCC to maintain a strong stance on corruption. Below I outline some options—including what I see as the best choice—and address reservations that such a change would fundamentally alter MCC’s focus on corruption or hamper its power to incentivize anticorruption reforms.
The problem with the current measure of corruption
For background on MCC’s selection process, see MCC’s official document or my short synopsis (see section “How the Selection Process Works,” p. 2-4).
There’s a lot to like about MCC’s evidence-based selection system, including its transparency and the way it helps focus eligibility decisions on criteria related to policy performance rather than geopolitical considerations. Indeed, the board—which is responsible for all eligibility decisions—has an important role to play in ensuring MCC does not invest its scarce funds in the most corrupt countries or in countries where corruption is on the rise. The scorecard—including the Control of Corruption indicator—can help it do that. But because the data imperfectly reflect both ranked performance and changes over time, the indicator offers only one part of the story. Unfortunately, the hard hurdle on Control of Corruption—a rule that countries must pass this indicator to meet the overall scorecard criteria for eligibility—while not meant to be an ironclad rule, sometimes encourages more rigid interpretation of the data than the indicator can reasonably support. This problem takes two main forms.
The first is that MCC’s process of ranking countries assigns greater differences among countries than what is actually found in the data. The Control of Corruption indicator comes with a calculable margin of error that shows the range of possible values a country’s score could take. The point estimate—the score MCC uses—is the midpoint of this range and what MCC uses to calculate each country’s distinct percentile rank. Countries with scores above the median (50th percentile) of the income-level peer group pass; those below fail. However, if you take into account the margin of error, as shown in the figure below, countries from the 32nd percentile(Cambodia) to the 77th percentile (Djibouti) have overlapping—that is, statistically indistinguishable—scores, yet only those including and to the right of Mozambique pass. That is to say, around half of all MCC candidate countries have Control of Corruption scores that are statistically indistinguishable from the median and from each other, yet roughly half of these roughly equivalent countries could be considered for MCC partnership while the other half is deemed too corrupt.
The second problem is that the Control of Corruption indicator, as currently employed by MCC, is not well-suited for monitoring performance on a year-to-year basis. Clear upward or downward trends do sometimes emerge over several years, but small year-to-year changes in a country’s Control of Corruption score are often just statistically insignificant “noise,” unlinked to real deterioration (or improvement) in policy. Unfortunately, however, these small, otherwise unimportant changes can make a passing-to-failing difference for countries in the large cohort whose scores cluster around the median. This is particularly problematic when it happens to a country in the middle of developing a compact since it generally must be reselected each year during program development (typically 2-4 years) until the compact is signed.
Another reason countries can move from passing to failing irrespective of policy deterioration relates to changes in the composition of the comparator group as countries shift among income categories. In FY2017, for instance, some high-performing countries joined the lower-middle-income group and some lower performers moved out, pushing the median score slightly up. A small increase like this can push those previously just above the line into failing territory—as it did to Mongolia. While neither of these circumstances—minor score fluctuations or changes in the median—suggests the country is suddenly more corrupt than it was when it was initially given the stamp of approval, a rigid application of MCC’s current scorecard rules suggests the board should consider cutting these countries off.
Dissatisfaction with MCC’s use of the Control of Corruption hurdle has led some of my colleagues to advocate dropping it completely. While their justification is sound, I would contend that the existing rules are acceptable for the initial selection decision (i.e., the first time a country is picked to begin developing a compact), even in the light of the data limitations described above. It’s true that being in or out comes down to little more than luck for many middle-performing countries, but it’s at least a transparent basis for eligibility decisions. For reselection decisions, on the other hand, I’ve long argued (here p. 4-8, here, here), the current rules are deeply inappropriate. Once a country is selected, it should only be cut off on the basis of an actual, identifiable pattern of actions that demonstrates real policy decline. MCC should not cut off a country (by not reselecting it) or threaten to cut it off (by requiring it to pass the scorecard before proceeding to compact signing) simply on the basis of the movements of imprecise data.
Unfortunately, MCC’s board hasn’t always seen it that way, deciding not to reselect Benin, Sierra Leone (FY2014), and Kosovo (FY2017) for compact eligibility when they narrowly failed the Control of Corruption indicator. MCC even admitted that Benin and Sierra Leone had exhibited no deterioration in policy. In the end, Sierra Leone and Kosovo were relegated to MCC’s much smaller threshold program. Benin was ultimately reselected for compact eligibility the following year, but only after compact development was slowed by the earlier decision. In all of these recent cases, the board evidently weighed the need to be seen playing by the rules more heavily than the need to account for data limitations. This is why I’m heartened that MCC is exploring small but absolutely critical options to adjust its approach to the Control of Corruption indicator for reselection decisions.
How to fix the problem
There are a number of different forms such an approach could take, but my proposal for a clear best choice is as follows:
For a country being considered for reselection, it should be considered to “pass” the Control of Corruption indicator if its current year’s score is within the margin of error from its score the year it was selected.
Simply put, if the country’s score is statistically no different from the year in which it was determined to perform sufficiently well, its pass/fail performance on the indicator should be interpreted in a similarly consistent manner. In fact, the indicator’s creators specifically mention that the margin of error is included to “enable users to avoid over‐interpreting small differences between countries and over time in the indicators that are unlikely to be statistically—or practically—significant.” This rule would better align data rules with smart data interpretation, eliminating the need for the board to make tradeoffs between them.
Such a rule would not guarantee countries continued eligibility, even if their score is within the margin of error of the score the year it was selected. As with all selection decisions, the board has discretion to determine whether a country that passes the indicator criteria should be selected as eligible. A wide range of supplemental information on the actual policy environment informs this decision, and if the board determines a real policy decline is occurring, then the partnership should be reconsidered. In the absence of a concrete concern, however, it should continue if the score is statistically unchanged.
Alternative (less promising… or even damaging) solutions
There are other options MCC may be considering, some of which would entail the formalization of various ad hoc pronouncements the agency has made before in explaining individual eligibility decisions. All of these have more significant drawbacks. They are either unconducive to the creation of a simple “rule,” offer little improvement over the status quo, or, in some cases, create perverse incentives.
Using a different, more precise indicator: MCC has long searched for an alternative corruption indicator that is more precise and less noisy. But to date there are no plausible alternatives that don’t have at least equivalent methodological constraints and that meet MCC’s other criteria of public availability, broad country coverage, and regular periodicity.
Using “trends” in score as the basis for a rule:Indicator trajectory was one of the factors that MCC cited in its decision to discontinue compact eligibility for Kosovo last year. Looking at trends in a country’s Control of Corruption score over time can be instructive and should be part of the board’s review. When clear improvements or declines in indicator score appear over the span of several years, they are often associated with real shifts on the ground. See, for instance, the trajectories of Cote d’Ivoire and Mozambique in the figures below. The first is a country making marked progress toward stable governance post after a long turbulent period while the second has weathered major scandals that have prompted donors to pull funds in recent years.
But not all trends are as clear cut as the examples above, raising the question of what degree (and consistency) of downward slope is sufficient to trigger concern? A country whose precipitously declining trend line looks like Mozambique’s? Probably. One whose downward trajectory is flatter overall and peppered with ups and downs, like Liberia’s? It’s harder to call this a real decline.
(Note: Liberia passes the Control of Corruption indicator, as it did throughout compact development; it was selected merely to illustrate the kind of trajectory that country scores can take.)
Furthermore, noisy scores that bounce around from year to year can create similarly rapidly shifting trends. Take Sierra Leone, for instance. From 2010 to 2014, its trend was negative. But shift forward just one year and the trend becomes positive.
Applying a “three strikes and you’re out” rule: Under this rule, a country could fail the Control of Corruption indicator twice with a free pass (as long as there was no significant deterioration in actual anticorruption policy), but the third consecutive failure would be considered a “real” failure with the potential consequence of non-reselection. This would be a poor rule choice for two reasons. First, it still allows for countries to be cut off for reasons other than policy performance, if their decline in score does not reflect an actual decline in policy. Second, it is full of perverse incentives. For a country that has failed twice, MCC would have every incentive to rush the compact to the finish line before the country had a chance to fail a third time; this could have negative implications for program readiness and quality.
Accepting failure during compact development but requiring the country to pass to proceed to compact signing: MCC has made this kind of proclamation before, and luckily, both times things worked out. But that’s all it was—luck that a high stakes gamble on the behavior of imprecise data yielded a convenient outcome at the right time. The problems with this option mirror those of the option above. It is a waste of US and partner country time and resources to fully develop a program only to have it pulled at the end purely on the basis of noisy data. It also creates perverse incentives for MCC to rush programs to completion in a year a country passes just in case it doesn’t pass the next year.
The major challenge with any change to how MCC uses the Control of Corruption indicator is one of optics. The agency’s selection system is admired in part because of the way it strongly signals the importance of fighting corruption. Supporters like the idea that it keeps MCC from channeling funds to the most corrupt countries and incentivizes reform in countries seeking to gain MCC eligibility. Not only that, Congress grants MCC substantial freedom from earmarks and other spending directives because it recognizes that the agency’s rule- and evidence-based systems serve as an alternative form of accountability for sound decision making. Given these interests, it’s important to address potential concerns surrounding the change:
Would this new approach be used so much that it fundamentally alters how MCC assesses corruption performance for countries?
No. The new rule would come into play very infrequently. In its entire 14-year history, MCC has faced decisions about whether to reselect countries that failed the Control of Corruption indicator during compact development only 15 times (out of a total of 101 individual reselection decisions). This suggests the issue would come up for one country per year, on average. And in many years it will be a complete non-issue. For six of MCC’s 14 years, no countries up for reselection failed the Control of Corruption indicator. The current rules would prevail for most decisions. The new approach would merely be a small way to hedge against the rare cases in which an action based on the current rules could result in a poor decision.
Does it soften MCC’s stance on corruption?
Not at all. The board maintains every right to choose not to reselect a country that exhibits an actual deterioration in its anticorruption environment. In fact, by shifting the focus from indicator score (as long as it is within the margin of error of its score at initial selection) to actual policy environment, it makes MCC much more serious about corruption because it requires the agency to point to a concrete set of concerns that a country could then presumably address. On the other hand, a rigid interpretation of the current rules can (and has) put MCC in the awkward and wishy-washy position of having to say to a country, “no, it’s nothing in particular that you’ve done that caused you to fail, but a rule is a rule… Maybe try to address a few of these problematic things, even though we have no idea whether doing so will affect your Control of Corruption score because it’s just not that sensitive or precise. Sorry!” Which of these options offers a more serious stance on corruption? (Hint: it’s not the latter.)
Does it look bad for MCC to partner with countries whose Control of Corruption scores are red on the scorecard?
This is admittedly tricky from an optics perspective. However, being more explicit about the rules of interpretation would go a long way to help. Taking it further, MCC could—and arguably should—match the scorecard color to performance according to the rules. That is, if a country passes MCC’s indicator rules—including the minor change in approach to interpreting corruption for countries up for reselection—the scorecard should reflect that passage in green. This would not be the first time special, non-median-based rules are applied to a particular set of countries. MCC changed the passing threshold for the Immunization Rates indicator for lower-middle-income countries to a fixed threshold rather than the median because using the median as a cutoff was yielding illogical decisions. This adjustment could—and should—be viewed similarly.
Does it compromise the MCC scorecard’s purported ability to incentivize reform (a.k.a., “the MCC Effect”)?
It’s unlikely. There are some real, concrete examples of MCC’s selection system contributing to reform conversations, but it likely works idiosyncratically rather than systematically. It would be a mistake, therefore, to let broad, unproven assumptions about how the “MCC Effect” works prevent the agency from addressing specific, known problems with the way its data is sometimes used. Furthermore, it’s far from clear that the incentive effect MCC scorecards have in the area of corruption is particularly meaningful. Research (and an MCC-specific example) show that external assessments like MCC’s scorecards may play a role in shaping anticorruption policies, but likely in a way that responds more to donor demands rather than in a way that actually combats corruption.
Ambassador Mark Green—President Trump’s pick to lead the US Agency for International Development (USAID)—is slated to appear before the Senate Foreign Relations Committee for his nomination hearing on Thursday morning.
Green’s nomination was heralded by many in the international development community, who know his extensive development experience and orientation toward smart reform. While his qualifications are not in dispute, Green is likely to face questions from lawmakers about how he’ll position USAID for success, in light of massive budget cuts proposed by the administration and ongoing discussions of potentially major reorganization.
Drawing on themes of efficiency, effectiveness, accountability, and results, here are a few questions we’d pose to Ambassador Green (and a few of the things we’d love to hear in response).
How can USAID plan for sustainable engagement with partner countries over the medium to long term?
The administration proposed deep funding cuts that, if enacted, would appear to force the near-term closure of several USAID missions. Lessons from previous mission closures suggest hurried deadlines that leave insufficient time to develop a transition strategy in consultation with partner country and US interagency stakeholders can damage bilateral relationships and compromise US interests. Not only that, mission closures are costly in the short-term, so decisions to close that are revisited shortly thereafter (witness the reopening of the closed mission in Tunisia, for example) can be deeply inefficient. That said, USAID can and should do more to plan for what US engagement, in its set of partner countries, should look like over the medium to long-term. In some cases, especially among middle-income partner countries, that planning should consider shifting away from bilateral grant assistance. As part of prioritizing where USAID spends its grant resources and planning for how longer term US engagement should look, Green should reject hasty decision-making in favor of strategic processes that involve deep participation of partner country and interagency stakeholders. For countries under consideration for reduced grant-based assistance, we hope he will encourage missions to explore approaches and tools that help transition countries to a new kind of partnership. Avenues for engagement that move beyond traditional grant-based financing could include trade promotion, loans, and other sources of US development finance.
USAID has made significant progress toward greater accountability through transparency over the last two administrations. What will you do to build on that progress?
When Publish What You Fund first started measuring donors’ progress on transparency in 2011, USAID was in the bottom quartile of the evaluated agencies. By 2016 it ranked better than half of the 46 global donor organizations—a commendable jump in a fairly short time.
Green has an excellent opportunity to build upon recent momentum toward greater transparency by committing to publish USAID’s contracts. The benefits include shortening the chain of accountability, increasing the likelihood that contracts are in the public interest. It can also increase the quality and competition for contracts and has the potential to save the government money and prevent corruption. As our colleague Charles Kenny points out this is totally doable—in fact, other countries are already onboard.
Even short of agreeing to publish USAID contracts, Green could do more to ensure data on USAID contracts and their implementation is made available to the public. Under the Federal Funding Accountability and Transparency Act of 2006, prime awardees of USAID contracts are required to report first-tier subawards, but that information isn’t published in any comprehensive way. (This is a big reason our colleagues had such a hard time tracking aid money that went to Haiti after the 2010 earthquake.) Green could take a small but meaningful step toward greater transparency by ensuring data on USAID subcontractors is made publicly available.
How will you work to institutionalize learning and evidence-based programming to maximize the potential for delivering results?
Both of the last two administrations have made concerted efforts to make US foreign assistance a more evidence-based enterprise. Important steps have been taken to increase evidence-based program design and to track and measure the outputs, outcomes, and impacts of US foreign assistance programs. Working with a strong policy foundation, Green could redouble USAID’s commitment to evaluate and learn from its programs and apply that learning (as well as external evidence) to future project design and implementation. The agency, with Green at the helm, also has the opportunity to develop leadership in emerging approaches in evidence-based programming. One interesting opportunity USAID has so far left on the table, is to pilot programs that disburse funds upon the achievement of outcomes. By exploring innovative approaches—such as cash on delivery and development impact bonds—the United States’ largest aid agency can ensure value for money from our aid dollars by paying only when development outcomes are achieved. And, again, the road is not untested. Rather than paying for textbooks, school construction, or teacher training, the UK’s aid agency committed to support education progress in Ethiopia by agreeing to pay a fixed amount for each additional student above a baseline to complete grade 10 and sit for the final exam. The same approach can be applied to sectors beyond education. The agency could agree to pay for each additional household and business with access to reliable electricity, or for decreased travel time and costs across a commercially valuable transit route. Let’s hope Green is willing to give it a shot.
How will you ensure that USAID's emerging "policy voice" doesn't disappear amidst budget cuts and structural changes?
Despite being the largest bilateral aid provider in the world, USAID has long suffered under an inferiority complex in relation to other aid agencies, particularly the UK's Department for International Development. In large part, that reputation came from being known more as a procurement agency than a development policymaker. Fortunately, the agency has made important strides in more recent years toward a robust internal policy function and a strong policy voice within the US government and in multilateral settings. It remains important for US interests around the world to have USAID at the table, helping to shape policy informed by experience on the ground. Policymakers at the State Department or Treasury typically lack an on-the-ground development perspective. And, if confirmed, it will fall to Green to ensure USAID continues to fulfill this important role. A US government foreign policy that lacks USAID’s vital input, whether pertaining to a country relationship or a multilateral set of issues, will be weaker and less effective as a result.
In your view, what is USAID’s comparative advantage vis-à-vis other US departments and agencies working to deliver US foreign assistance?
There are many US institutions involved in foreign assistance. (You can read more about the roles of a few key players here.) Members of the committee are likely to seek assurances from Green that he will provide a strong voice on development and humanitarian issues in any conversations on government reorganization. His approach to this will depend on how he views USAID’s role in the development and humanitarian landscape. Having served two stints on MCC’s board, Green will have a particular advantage in explaining USAID’s role relative to that of the Millennium Challenge Corporation whose model inherently limits its scope. But it will be critical for him to articulate USAID’s strengths and ensure that any reorganization seeks to capitalize on those.
One of the key pillars of MCC’s model is that country ownership matters for results. In broad terms, the idea of country ownership is that donors’ engagement with developing countries should reflect the understanding that partner country governments, in consultation with key stakeholders, should lead the development and implementation of their own national strategies and that foreign aid should largely serve to strengthen recipients’ capacity to exercise this role.
Happily, in the last 25 years, the proportion of people living on less than $1.25 a day has dropped by two-thirds. Most of this success is due to major global forces such as trade and cross-border labor mobility. And much of the credit goes to the governments and citizens of developing countries themselves for pursuing the policies that have enabled donor, private sector, and (increasingly) their own resources to translate into development outcomes. But development assistance—including US aid—has made important contributions.
Since its establishment more than 54 years ago, the United States Agency for International Development (USAID) has expanded into an $18-billion-a-year agency, operating in over 145 countries and in nearly every development sector. But USAID is often constrained in its ability to adapt to emerging development challenges due to differing political priorities among key stakeholders and resource constraints. This memo is the result of a roundtable discussion in July 2016 on how the next US administration, in close concert with Congress, can build upon and maximize the development impact of USAID.
The Millennium Challenge Corporation’s (MCC) board of directors is scheduled to meet on December 10. As usual, they will use this end-of-year meeting to vote on which countries will be eligible for MCC assistance for FY2015.
Attention presidential transition teams: the Rethinking US Development Policy team at the Center for Global Development strongly urges you to include these three big ideas in your first year budget submission to Congress and pursue these three smart reforms during your first year.
The Millennium Challenge Corporation (MCC) is at a crossroads. Many of its early compacts—large-scale, five-year grants that support country-led solutions to poverty reduction through economic growth in a select set of poor but well-governed countries—are coming to a close.