Millennium Challenge Corporation:

Compact Implementation Structures Are Being Established; Framework for Measuring Results Needs Improvement

GAO-06-805: Published: Jul 28, 2006. Publicly Released: Jul 28, 2006.

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David B. Gootnick
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In January 2004, Congress established the Millennium Challenge Corporation (MCC) to administer the Millennium Challenge Account. MCC's mission is to reduce poverty by supporting sustainable, transformative economic growth in developing countries that create and maintain sound policy environments. MCC has received more than $4.2 billion in appropriations, and, as of May 2006, it had disbursed $22.4 million to four countries whose signed MCC compacts have entered into force. For the first three countries with compact entry into force--Madagascar, Cape Verde, and Honduras--GAO was requested to examine (1) key aspects that MCC reviewed, and the criteria it used, in its due diligence assessments; and (2) the structures that have been established for implementing the compacts.

MCC undertook a wide range of activities in its due diligence, including five key aspects of the Madagascar, Cape Verde, and Honduras proposals: (1) countries' consultation with local groups in developing compact proposals, (2) projects' coherence with compact goals, (3) environmental and social impacts, (4) institutional and financial sustainability, and (5) impact on economic growth and poverty reduction. MCC based its assessments on an evolving set of criteria: early, general guidance to the countries followed by later, more specific guidance. MCC's analyses of the projects' economic impact were limited in that some of the assumptions and data used may not reflect country conditions. As a result, the projects selected on the basis of the analyses may not achieve compact goals. In the two countries we visited, Madagascar and Cape Verde, MCC conducted the analyses with limited country participation, which resulted in countries' having little understanding of the process. MCC and the three countries have made progress in establishing compact country structures for oversight and management, procurement, fiscal accountability, and monitoring and evaluation, although some of these structures are not yet complete. The oversight structures allow for country management with MCC review, but some organizations were not fully staffed for months after the compacts entered into force. Madagascar and Cape Verde have implemented fiscal accountability structures for MCC-funded projects, and established procurement structures with effective characteristics; however, these structures are still largely untested and some are still under development. Finally, MCC and the countries have established monitoring and evaluation frameworks to track and account for program results. However, limitations in the baseline data collected, linkage to economic analyses, methods of addressing uncertainty associated with program results, and the timely design of randomized controlled trials may constrain MCC's ability to monitor and evaluate program results.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: MCC has revised its process of developing economic analyses and increased its up-front engagement with compact countries. MCC now requires eligible countries to prepare an initial analysis that identifies constraints to development and requires wide consultation within the country on this analysis. Following consultation with MCC on the constraints analysis, MCC requires countries to prepare a project concept paper for MCC review. After consultation on the concept paper, countries, often with MCC assistance, then present and analyze the projected benefits of the compact projects.

    Recommendation: Because of the central role of reliable economic analyses and the importance of partnering with countries in achieving MCC goals and ensuring accountability for MCC programs, the Chief Executive Officer of MCC should ensure that MCC officials, in partnership with country representatives, perform economic analyses that more fully reflect the countries' socioeconomic environment and are better understood by country public and private sector representatives.

    Agency Affected: Millennium Challenge Corporation

  2. Status: Closed - Implemented

    Comments: Since we made this recommendation, MCC has taken a number of steps to improve its monitoring and evaluation capabilities. To improve the accuracy and reliability of its baseline data, MCC has expanded the use of the authority given it in section 609(g) of the Millennium Challenge Act to help prepare for compact implementation by undertaking data gathering efforts or refining existing data surveys. MCC has greatly expanded its Guidelines for Economic and Beneficiary Analysis. Further, its most recent guidelines on monitoring and evaluation include a requirement that the compact include key indicators drawn from the variables in the economic analysis at the goal, objective, and outcome level--with their definitions, baseline values, and targets. These guidelines also include guidance on establishing targets and outline a procedure for modifying these targets. Finally, MCC has developed a framework for assessing the opportunities to use randomized controlled trials and has established a procedure whereby the contracted evaluation firms work with project implementers during compact development to ensure that project implementation supports the impact evaluation. MCC has also hired staff familiar with integrating randomized controlled trials into its evaluations.

    Recommendation: Because of the central role of reliable economic analyses and the importance of partnering with countries in achieving MCC goals and ensuring accountability for MCC programs, the Chief Executive Officer of MCC should, to the extent practical and cost-effective, improve MCC's monitoring and evaluation capabilities by obtaining more accurate and reliable baseline data needed to permit tracking progress during compact implementation; ensure a clear linkage between MCC's economic analyses and monitoring and evaluation frameworks; develop policies, procedures, and criteria for establishing targets and for adjusting those targets if unforeseen events affect outcomes; and take steps to ensure the timely development of the needed research design for randomized controlled trials, if they are undertaken, prior to project implementation.

    Agency Affected: Millennium Challenge Corporation


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