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Congress Widens MCC’s Aperture—A Snapshot of New Potential Partners

The Millennium Challenge Corporation celebrated its 20th birthday last January, but Congress’s gift to the agency didn’t arrive until late December. It came in the form of the MCC Candidate Country Reform Act, signed into law as part of the FY 2025 National Defense Authorization Act. The measure provides for a modest (but long-awaited) expansion of MCC’s country candidate pool—that is, the starting list of countries from which the agency screens for well-governed partners. 

As a quick reminder, in 2002, the George W. Bush administration unveiled plans for a development agency that would partner exclusively with lower income countries that demonstrate good governance to tackle constraints to economic growth. The idea won support from lawmakers on Capitol Hill, and authorizing legislation establishing the Millennium Challenge Corporation was signed in January 2004. 

In the intervening two decades, MCC has built quite the track record of partnerships and, just as importantly, has demonstrated a willingness to walk away when partner governments don’t hold up their end of the agreement. Over the same timeframe, many countries around the world have grown wealthier, so the directive in MCC’s authorizing statute that restricts the agency’s investments to low- and lower-middle-income countries (as classified by the World Bank using GNI per capita) has led to a shrinking candidate pool. Ahead of its vicennial, the agency began considering ways it might evolve to meet the moment—which eventually led to asking Congress to reconsider the existing income restrictions. 

Lawmakers from both sides of the aisle landed on a compromise that enables MCC to expand its aperture to include countries at or below the World Bank’s graduation discussion income (GDI) threshold—the point at which the Bank starts discussing graduation from International Bank for Reconstruction and Development loans—while still prioritizing lower-income countries. The World Bank adjusts the GDI annually, and as of July it’s $7,895 per capita. 

For the current fiscal year, 2025, the new law would add 33 countries to MCC’s starting line, bringing the total number of candidate countries to 109. But perhaps the more important question is, what will this mean in practice? (Hint: Potentially good things for Albania.) 

Adding 33 new potential partners to the candidate pool doesn’t mean MCC is going to pursue programs in all of these countries. For starters, the agency is prohibited by other statutes from working with a few of the additions (Azerbaijan, Belarus, Iran). And only 14 of the new countries passed MCC’s FY25 scorecard, which aims to evaluate a country’s performance on third-party indicators related to the quality of its governance. Finally, having reviewed country scorecards and supplemental material while taking into account other factors (including available resources), MCC’s Board of Directors typically selects just a few countries each year as eligible to begin compact development (or eligible for the agency’s threshold program—intended to be something of a precursor to deeper engagement). 

Eager to hit the ground running, the agency has already announced the board’s selection of Albania as eligible to develop a compact in the wake of the NDAA’s signing. Albania previously partnered with MCC via the threshold program. Yet the Balkan nation exceeded MCC’s economic cut-off, becoming an upper-middle-income country while implementing its second threshold program in the early 2010s before having a shot at compact development.  

A few other new candidate countries (El Salvador, Georgia, Indonesia, Mongolia) each developed two compacts with MCC prior to becoming UMICs. Given the historic hesitation to pursue further subsequent compacts beyond two (stemming, in part, from worries about past congressional opposition), the agency may pause before placing them in immediate contention for another compact. Still, MCC might consider engaging these new potential partners using concurrent compact authority enacted in 2018 to pursue regional investments since the agency has viewed those programs as distinct from traditional bilateral compacts. Our colleague Charles Kenny voiced a strong preference for more and larger compacts and reducing adherence to the agency’s patented scorecards, including the control of corruption indicator, over expanding the candidate pool to include some upper-middle-income countries. He raises strong points. However, the prospect of weakening scorecard requirements is an extremely hard sell on Capitol Hill.  

Still, as we’ve made the case before, MCC should hold these new additions to a higher standard. That starts with the selection process, where the agency has indicated the new candidate countries will compete against their upper-middle-income peers rather than countries in the two existing income categories. Another realm MCC is sure to consider is the commitments future UMIC partner countries agree to as part of compact negotiations. This could translate into more robust policy reforms—known as conditions precedent—carried out by the partner government before a funding tranche can be disbursed. In working with partner countries that are somewhat less resource-constrained, MCC might also request more substantial financial (or in-kind) contributions. While there are no hard and fast rules, the agency negotiates partner country contributions in advance of any compact agreement. Not only do these contributions help demonstrate a country’s commitment to partnership, they help extend the reach of MCC’s investment. The agency has been excited to tout a recent standout example: as part of a concurrent compact (regional investment) with Benin, the country’s government agreed to contribute $204 million to complement MCC’s $202 million investment.   

Another opening for leverage could come through increased collaboration, including with the US International Development Finance Corporation, which has existing authority to work in UMICs to finance private sector investments that promote development.  

We’re pleased that after two decades, MCC continues to look for opportunities to expand its impact—and encouraged by the vote of confidence from lawmakers key to driving the change, including Senate Foreign Relations Committee Chair Jim Risch (R-ID), Effective Foreign Assistance Caucus Co-Chairs Joaquin Castro (D-TX) and Young Kim (R-CA), and House Foreign Affairs Committee Ranking Member Greg Meeks (D-NY). Most of all, we’ll be excited to see MCC test its patented approach to partnership-based investment in more parts of the world while still prioritizing the lower-income countries most in need of its support.  

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.