Guide To The MCC Indicatorsand The Selection Process For .
Guide to theMCC Indicators andthe Selection Processfor Fiscal Year 2014September 2013
ContentsPart 1:Selection ProcessOverview.1Identification of Candidate Countries. 3Publication of MCC’s Selection Criteria & Methodology . 3Methodology. 4Indicators . 4Supplemental Information. 5Publication of MCC Scorecards. 5Selection of Compact-Eligible Countries. 5Selection of Threshold Countries . 5Part 2:How to Read anIndicator Scorecard. 7Reading The Scores—A Reference Guide. 9Part 3:Guide to theMCC Indicators.11Ruling Justly Category .13Political Rights Indicator .13Civil Liberties Indicator . 14Control of Corruption Indicator. 16Government Effectiveness Indicator .17Rule of Law Indicator.20Freedom of Information Indicator . 22Investing in People Category .24Immunization Rates Indicator .24Health Expenditures Indicator. 25Primary Education Expenditures Indicator.26Guide to the MCC Indicators for Fiscal Year 2014 September 2013iii
Girls’ Primary Education Completion Rate Indicator. 27Girls’ Secondary Education Enrolment Ratio Indicator. 27Child Health Indicator . 28Natural Resource Protection .29Encouraging Economic Freedom Category .30Regulatory Quality Indicator.30Land Rights and Access Indicator. 32Access to Credit Indicator. 33Business Start-Up Indicator. 35Trade Policy Indicator. 37Inflation Indicator. 38Fiscal Policy Indicator. 39Gender in the Economy Indicator.40Endnotes. 41Reducing Poverty Through Growth.60ivSeptember 2013 Guide to the MCC Indicators for Fiscal Year 2014
Part 1:Selection ProcessOverview1
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To select countries as eligible for Millennium Challenge Account (MCA) compact funding, theMillennium Challenge Corporation (MCC) assesses the degree to which the political, social, andeconomic conditions in a country promote broad-based sustainable economic growth. In makingits determinations, MCC’s Board of Directors (“the Board”) considers three factors: performance on thedefined policy criteria, the opportunity to reduce poverty and generate economic growth in the country,and the funds available to MCC. When considering a country for a subsequent compact, the Board alsotakes into consideration the country’s track record of performance on implementing its prior compact. Toassess implementation of a prior compact, the Board considers the nature of the country partnership withMCC, the degree to which the country has demonstrated a commitment and capacity to achieve programresults, and the degree to which the country has implemented the compact in accordance with MCC’score policies and standards. To assess policy performance, MCC uses third-party indicators to identifycountries with policy environments that will allow MCA funding to be effective in reducing poverty andpromoting economic growth. MCC evaluates performance in three areas—Ruling Justly, Investing inPeople, and Encouraging Economic Freedom.The Selection Process has four major steps:1.Identification of Candidate Countries2.Publication of MCC’s Selection Criteria and Methodology3.Publication of MCC Scorecards4.Selection of Compact-Eligible and Threshold-Eligible CountriesIdentification of Candidate CountriesCandidate countries for the fiscal year are identified based on their per capita income and whether theyare legally eligible to receive U.S. economic assistance. MCC submits a report to Congress with a list ofcandidate countries prior to the selection of countries eligible for MCA assistance. For Fiscal Year 2014(FY14), a “candidate country” must meet one of the following income criteria and cannot be statutorilyineligible to receive U.S. economic assistance under the Foreign Assistance Act or any other provision oflaw. Low Income Category: countries with a per capita income among the poorest 75 countries; or Lower Middle Income Category: countries with a per capita income above the poorest 75 countries butbelow 4,085.Publication of MCC’s Selection Criteria & MethodologyMCC submits a report to Congress describing the criteria and the methodology—including the indicators—which MCC’s Board of Directors will use to select countries as eligible for MCA assistance. MCCholds a formal public comment period following publication of the report.Guide to the MCC Indicators for Fiscal Year 2014 September 20133
MethodologyWhen evaluating countries for eligibility, the Board considers whether countries perform above the median score of their income peer group (either the Scorecard LIC group or the Scorecard LMIC group)1 onat least half of the indicators overall, as well as above the median on the Control of Corruption indicatorand above the threshold on either Political Rights or Civil Liberties (the Democratic Rights indicators.)For the Political Rights, Civil Liberties, Inflation, and Immunization indicators2, countries performance isgauged against an absolute threshold as opposed to the median score. The Board also takes into consideration whether a country passes at least one indicator in each category (Ruling Justly, Investing in People,and Economic Freedom.)IndicatorsTo evaluate policy performance, MCC uses, to the maximum extent possible, objective and quantifiablepolicy indicators in three broad policy categories: Ruling Justly, Investing in People, and EncouragingEconomic Freedom. MCC favors policy indicators developed by independent third party institutions thatrely on objective, publicly available data and have an analytically rigorous methodology. MCC seeks indicators that have broad country coverage, cross-country comparability, and broad consistency in resultsfrom year to year. MCC also seeks indicators that are linked to economic growth, poverty reduction, andgovernment policies. The indicators that will be used in Fiscal Year 2013 are: Ruling Justly* Civil Liberties (Freedom House)* Political Rights (Freedom House)* Control of Corruption (World Bank/Brookings Institution WGI)* Government Effectiveness (World Bank/Brookings Institution WGI)* Rule of Law (World Bank/Brookings Institution WGI)* Freedom of Information (Freedom House / FRINGE Special/ Open Net Initiative) Investing in People* Immunization Rates (World Health Organization and UNICEF)* Public Expenditure on Health (World Health Organization)* Girls’ Education (UNESCO) Primary Education Completion (Scorecard LICs) Secondary Education Enrolment (Scorecards LMICs)* Public Expenditure on Primary Education (UNESCO and national sources) Child Health (CIESIN and YCELP) Natural Resource Protection (CIESIN and YCELP)1In Dec 2011, the definition of Low Income countries and Lower Middle Income countries changed for the purposes of the Candidate Country Report. Thischange brought greater stability to MCC’s ability to work with its partner countries. However, in order to reduce income bias and instability in the annual eligibility scorecards, MCC continues to use the World Bank’s historical ceiling for IDA eligibility to divide countries into assessment categories. In order to minimizeconfusion between these income categories, MCC is using the terms Scorecard LICs and Scorecard LMICs to describe the way countries are divided by the IDAhistorical ceiling for Scorecard purposes.2The Immunization Rate threshold applies to Scorecard LMICs only. Scorecard LICs are still assessed on a median system for this indicator.4September 2013 Guide to the MCC Indicators for Fiscal Year 2014
* Encouraging Economic Freedom* Business Start-Up (IFC)* Land Rights and Access (IFAD and IFC)* Trade Policy (Heritage Foundation)* Regulatory Quality (World Bank/Brookings Institution WGI)* Inflation (IMF WEO)* Fiscal Policy (IMF WEO)* Access to Credit (IFC)* Gender in the Economy (IFC)Supplemental InformationThe Board may also consider information to address gaps, time lags, measurement error, or other weaknesses in the indicators to assist in assessing whether MCC funds might reduce poverty and promote economic growth in a country. For FY 2014, supplemental sources may include: the disabilities component ofthe U.S. Department of State’s Human Rights Report, and the Global Integrity Report, among other sources.If the Board is considering a country that has either completed a compact, or will complete a compactshortly, then the Board also considers that country’s performance during the compact implementationwindow.Publication of MCC ScorecardsAround a month before the MCC Board meets to select compact-eligible countries, MCC will publishcountry performance “scorecards” on its website (www.mcc.gov) for all candidate countries and countriesthat would be candidates but for legal prohibitions.Selection of Compact-Eligible CountriesFrom the pool of candidate countries, the MCC Board selects compact-eligible countries according to themethodology described above and submits a report to Congress no later than 5 days after the determination. These countries are then eligible to begin developing compact proposals for MCC’s consideration.Selection of Threshold CountriesThe MCC Board may also select countries to participate in the Threshold Program. The ThresholdProgram is for countries that demonstrate a significant commitment to meeting the eligibility criteria butfall short in only some policy areas. Threshold funding provides assistance for targeted policy reform efforts that address constraints to growth in a country.For more information on the MCA selection process, please refer to the Selection Criteria section of theMCC website (www.mcc.gov).Guide to the MCC Indicators for Fiscal Year 2014 September 20135
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Part 2:How to Read anIndicator Scorecard7
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Reading The Scores—A Reference GuideEach MCC candidate country receives a scorecard annually assessing performance in three policy categories: Ruling Justly; Investing in People; and Encouraging Economic Freedom.Indicator NameGreen bar: meetsperformance standardRed bar: does not meetperformance standardMedian or thresholdscore for country’sincome group(country scoremust be greater thanthis score to pass)Country’s scoreRule of Law0.15 (61%)Median0.00Country’s scoreCountry’s percentile rankingin its respective income group(0 percent is the worst;50 percent is the median:2.0100 percent is the best)1.0Margin of error(when known)Current year’s median0.0score in the country’srespective income group-1.0Performance range-2.0’07’08’09’10’11YearWorld Bank/Brookings WGIData sourceGuide to the MCC Indicators for Fiscal Year 2014 September 20132012-017-1141-019
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Part 3:Guide to theMCC Indicators11
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The Millennium Challenge Corporation (MCC) uses third-party indicators to identify countrieswith policy environments that will allow Millennium Challenge Account (MCA) funding to beeffective in reducing poverty and promoting economic growth. MCC evaluates performance inthree areas—Ruling Justly, Investing in People, and Encouraging Economic Freedom—using independent,third-party policy indicators. This is a guide to understanding and interpreting the indicators used byMCC in Fiscal Year 2014. It provides an overview of the policies measured by indicators, the relationshipthat these policies have to economic growth and poverty reduction, the methodologies used by thevarious indicator institutions to measure policy performance, descriptions of the underlying source(s) ofdata, and the contact information of the indicator institutions.MCC favors indicators that:1.are developed by an independent third party,2.utilize an analytically-rigorous methodology and objective, high-quality data,3.are publicly available,4.have broad country-coverage,5.are comparable across countries,6.have a clear theoretical or empirical link to economic growth and poverty reduction,7.are policy-linked, i.e. measure factors that governments can influence, and8.have appropriate consistency in results from year to year.For general questions about the application of these indicators, please contact the MCC’s DevelopmentPolicy Division at DevelopmentPolicy@mcc.gov.Ruling Justly CategoryThe six indicators in this category measure just and democratic governance by assessing, among otherthings, a country’s demonstrated commitment to promote political pluralism, equality, and the rule of law;respect human and civil rights, including the rights of people with disabilities; protect private propertyrights; encourage transparency and accountability of government; and combat corruption.Political Rights IndicatorThis indicator measures country performance on the quality of the electoral process, political pluralismand participation, government corruption and transparency, and fair political treatment of ethnic groups.Countries are rated on the following factors: free and fair executive and legislative elections; fair polling; honest tabulation of ballots; fair electoral laws; equal campaigning opportunities; the right to organize in different political parties and political groupings; the openness of the politicalsystem to the rise and fall of competing political parties and groupings;Guide to the MCC Indicators for Fiscal Year 2014 September 201313
the existence of a significant opposition vote; the existence of a de facto opposition power, and a realistic possibility for the opposition to increase its support or gain power through elections; the participation of cultural, ethnic, religious, or other minority groups in political life; freedom from domination by the military, foreign powers, totalitarian parties, religious hierarchies,economic oligarchies, or any other powerful group in making personal political choices; and the openness, transparency, and accountability of the government to its constituents between elections; freedom from pervasive government corruption; government policies that reflect the will of thepeople.Relationship to Growth and Poverty ReductionAlthough the relationship between democracy and economic growth is complex, research suggests thatthe institutional structures of democracy can promote growth by increasing policy stability, cultivatinghigher rates of human capital accumulation, reducing levels of income inequality and corruption, andencouraging higher rates of investment.1 The links between political rights and poverty reduction aresimilarly complicated, but there is evidence that democratic institutions are better at reducing economicvolatility and provide a more consistent approach to poverty reduction than do autocratic regimes.2Research also links the incentive structure of democratic institutions with outcomes favorable for thepoor.3SourceFreedom House, http://www.freedomhouse.org. Questions regarding this indicator may be directed toinfo@freedomhouse.org or 1 (212) 514-8040.MethodologyA team of expert analysts and scholars evaluate countries on a 40-point scale – with 40 representing“most free” and 0 representing “least free.” The Political Rights indicator is based on a 10 questionchecklist grouped into the three subcategories: Electoral Process (3 questions), Political Pluralism andParticipation (4 questions), and Functioning of Government (3 questions). Poi
Publication of MCC’s Selection Criteria & Methodology MCC submits a report to Congress describing the criteria and the methodology—including the indica-tors—which MCC’s Board of Directors will use to select countries as eligible for MCA assistance. MCC holds a formal public comment period following publication of the report.
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