The Millennium Challenge Corporation (MCC) is a US foreign aid agency established two decades ago. On April 22, MCC staff were told the agency would be effectively shuttered, with most work immediately suspended (some ongoing programs would be given a few months to wind down). MCC accounts for a small part of the US aid system: in 2024 it was responsible for $1.7 billion out of $79 billion in US foreign assistance obligations, and that was a high-water mark in recent history. But the agency’s model means its spending is concentrated in a few countries. For a subset of those countries, the impact will be considerable.
The MCC is the only part of the US government that has backed funding public-sector infrastructure in developing countries—a considerable focus of China’s Belt and Road initiative over the past 15 years. About half of its spending last year ($760 million) went to public finance for infrastructure projects. It is also unique in its focus on working with recipient governments in setting funding priorities and implementing projects under the MCC “compact” model.
The MCC has a (problematic) country-selection procedure that means it can only work in a small subset of developing countries. In FY2024, Indonesia, Malawi, and Lesotho between them accounted for over 90 percent of non-administrative MCC obligations. But partly as a result of that focus, the MCC can have a significant economic impact in some of the countries that it does support.
The table below lists countries with signed or active MCC programs. It suggests that for 15 countries with programs, the agreement involved is worth more than 1 percent of their GNI. For Kiribati it is 6 percent, Sierra Leone 8 percent, Lesotho 12 percent, and Timor-Leste 17 percent. Recipient economies will be notably affected.
These are small countries, but recent history suggests small countries can create significant concerns for the US. Not least, Sierra Leone was at the center of an Ebola outbreak in 2014 that left 74 percent of likely US voters to rate the threat of Ebola as “extremely or very important.” The violence following Timor-Leste’s independence in 1999 ended with the US providing support to Australia’s military intervention. The country also sits near the Lombok and Ombai-Wetar straits, which are alternate routes to the crowded and vulnerable Strait of Malacca, and Timor-Leste also has significant oil and gas reserves. If Sierra Leone and Timor-Leste are stable, growing economies, they will pose fewer threats—and present more opportunities—to the US.
Meanwhile, Lesotho built up an export industry with the help of US tariff legislation specifically designed to give African countries a comparative advantage and, as a result of the resulting trade surplus with the US, now faces the threat of a potential 50 percent tariff. Alongside the cancellation of the MCC agreement, most US support to deal with the ongoing HIV/AIDS crisis in the country has been paused. While it is surely true comparatively few Americans have heard of it, you can be sure people in Lesotho will have strong opinions about what is happening in the US.
The MCC is an institution created under statute with ongoing bipartisan support in Congress, and it is funded under the continuing resolution signed in the last few weeks by President Trump. But similar characteristics have not been enough as yet to alter the trajectory of USAID’s rapid dismantling. That suggests the MCC cuts will be another blow to global development prospects and America’s global standing.
