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The Millennium Challenge Corporation is a model aid agency in a lot of ways, one of which is its commitment to learning from experience and evidence on what works and what doesn’t when it comes to development programs. Despite that, it still has an egregiously flawed way to deal with the risk of corruption. The MCC takes a slippery and poorly measured concept and puts it to the most blunt of zero tolerance tests: if a country is below the median in its income group on the Worldwide Governance Indicators measure of control of corruption, it doesn’t get a compact.

The legion problems with that "hard hurdle" are laid out in a paper I co-authored with Casey Dunning and Jonathan Karver. And a recent MCC Board decision may illustrate the costs of the approach.

This year, Tanzania was up for a $473 million compact covering the energy sector. It aimed “to increase access to reliable electricity in Tanzania, strengthen utilities and utility management, help Tanzania implement its ambitious plan to reform the energy sector, and catalyze private sector investment.” All good stuff in a country where only fifteen percent of people have any access to electricity. And MCC’s Board suggested that “The Government of Tanzania has undertaken critical reforms in recent months to lay the groundwork for successful implementation of the proposed compact.”  But it still voted to delay funding last week.

There are a lot of potential reasons why the delay happened. One mentioned in the press release concerned upcoming elections: the Board “expressed its expectation that Tanzania’s October 25 general election is free and fair, consistent with the importance MCC places on democratic rights.” Not wanting to fork over a lot of aid right before an election may well be sensible, for all it is not captured in the MCC scorecard measure.

But the explanation that was highlighted in the press release was “continued concern regarding corruption in Tanzania.” In light of MCC’s fundamental commitment to fighting corruption, the Board decided, “Tanzania must pass the Control of Corruption indicator on MCC’s fiscal year 2016 scorecard before the Board will vote on the compact.” That’s a terrible rationale for delay.

There have been some worrying moves in Tanzania of late to limit independent oversight and the role of civil society. And the energy sector in the country has a spotty record when it comes to probity. As is clear from Tanzania’s “MCC Scorecard,” the country has been on the border of eligibility based on its control of corruption score for some time.

But the margins of error attached to that eligibility status are large, and the links to aid effectiveness are weak. If Tanzania does cross into ineligibility next year, it will almost certainly be a change without any statistically significant meaning. There is simply no evidence such a change would reduce the likely impact of MCC investments in the energy sector on development outcomes in Tanzania.

In short, cutting Tanzania’s funding next year on the basis of the corruption indicator would be playing at evidence-based policymaking, but it would be a very long way from the real thing. Perhaps that isn’t the real reason for the delay in project approval. But whatever the reason, it would be best not to hide behind fake policy precision as an excuse. It does a disservice to the smart, committed, and engaged staff at the MCC to do otherwise.

 

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