Ideas to Action:

Independent research for global prosperity

X

US Development Policy

Feed

The House’s FY16 SFOPS spending bill didn’t respond to the Millennium Challenge Corporation’s request for substantially more funding this year. (The legislation maintains the agency’s FY15 level of $900 million.)  But I was happy to see clear evidence of the House’s desire to better track the economic rationale behind MCC’s programs in the accompanying explanatory language. This is something my colleague, Franck Wiebe, and I have been pushing for.  More attention on the extent to which MCC projects are economically efficient—i.e., whether the value of their projected benefits will exceed the cost of implementation (read: good value for money)—can help encourage the results-focused agency to choose and deliver quality programs that are worth the taxpayer dollars spent on them.

Two things really stood out to me in the House’s report language.  First was a request that MCC include in its standard congressional notifications information on the estimated economic rates of return (ERRs) for each of the projects (and major, separable activities) in new country compacts.  ERRs are a summary statistic that come from the cost-benefit analysis MCC uses to screen for program quality.  Comparing ERRs across proposed projects allows MCC and its country partners to pick the investments that are most likely to deliver efficient results.  MCC generally adheres to its principle of using cost-benefit analysis across its entire portfolio to select efficient programs—something that really sets it apart from other donors.  However, there have been some notable exceptions, with the agency spending around $800 million over its first ten years on programs that either were approved in the absence of cost-benefit analysis or whose costs were known to exceed the value of their benefits. 

Of course we only know this because of MCC’s truly outstanding commitment to transparency. The agency publishes all its cost-benefit calculations and summary ERRs on its website.  This is a big deal and makes MCC a real leader among donors.  The problem is that these data are often posted well after compacts are signed and, by that point, stakeholder attention to the program has dissipated.  Requiring this information sooner, as part of the pre-signing congressional notifications, will allow more constructive and timely dialogue about program quality.

The second standout provision in the report was a request for a semi-annual report from the agency, which would include (among many other things) an explanation of major programmatic changes to existing compacts.  This is important because compacts occasionally need to be restructured due to implementation delays, higher-than-expected costs, and other factors.  MCC’s current policy mandates that cost-benefit analysis be conducted to guide decisions around restructurings, but decisions are not required to align with the results.  Furthermore, MCC has been far less transparent about publishing decisions (and the data that informed them) about mid-course corrections.  The agency has gotten better at explaining these changes as part of reporting on compact closure.  But for real accountability to take place (i.e., to know how MCC decides to proceed with programs that, after restructuring, are no longer economically efficient), the agency must be more open about mid-course changes as they occur. 

The budget process far from done, but as it progresses, I’ll be keeping my eye out for seemingly small tweaks like these that can help keep MCC accountable for following its model.  Senate, over to you….

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.