Why the MCC Should Declare Success in Ghana…and Then Walk Away

Ghana is still the hyper-darling of the development community. But if the aid bureaucracies don’t fully recognize the vast changes going on inside the country, then they are destined to just keep doing the same old thing.  That’s why the Millennium Challenge Corporation is rightly proud of its compact with Ghana. But it’s the same reason the MCC should not rush into a second compact.Ghana’s current $547 million MCC compact expires in February 2012.  As reported by CGD’s Sarah Jane Staats and colleagues:

All reports indicate that… the Ghanaian entity responsible for implementing the compact has been a proficient partner and the compact has already posted impressive results. The MCC board [in the December 15^th board meeting, assuming they have enough members to actually vote] will likely select Ghana as eligible for a second compact so that it may begin considering second compact plans and investments.

But here are some factors the MCC should consider:

• Ghana is (suddenly) just barely “low income”.  A recent rebasing of its GDP found the country was 63% richer than everyone thought.  Ghana might still technically qualify for the MCC but the rationale for another huge compact drops pretty significantly.
• Ghana has ready access to private capital for large projects.  Its $750m eurobond from 2007 was oversubscribed and demand has only grown since.  The yield has dropped down to just 6%.  Ghana can easily—and probably will—go back to the private markets if it feels it needs more cash.
• A massive oil project starts pumping on December 17 (yes, just two days after the MCC board meeting).  This will put at least $800 million into Ghana’s treasury next year, and at least $1.5 billion each year starting in 2013.

Yes, things are going so well in Ghana, the incentives for the MCC are to pile on and get another high-profile success story.  I get that.  And pushing them through now, before they are officially reclassified from LIC to LMIC (probably around 2015 or so), also makes sense if you want to get more money out the door.  The Ghanaians are sure to go along too (why pay investors 6% when you can get grants from the MCC?).But the right thing for the MCC and the Government of Ghana is to step back, pause, and say no.  The point of the MCC is to pick winners and deliver growth-friendly aid projects in a new accountable way.  That seems to be exactly what’s happening in Ghana.  But it’s not a good enough reason to do another compact, especially in a time of fiscal restraint.  Time to declare victory, and move on.