A data-driven model to increase Nepal’s economic growthThe MCC Compact was drawn together with Nepal’s own government, and will ultimately help boost Nepal’s economic growth.
The Millennium Challenge Corporation (MCC) Compact has received a lot of media attention in recent months. Some may be wondering about the facts surrounding the MCC. The Compact will boost economic activity and create immediate and long-term employment opportunities for Nepalis. Economic growth has always been an important shared goal but is even more pertinent now as Nepal looks to recover from the impacts of the Covid-19 pandemic.
The MCC Compact is a grant, which means it does not need to be repaid by the people of Nepal and does not add to Nepal’s national debt as a loan would. This grant is aimed at constructing electricity transmission lines and substations, and maintaining roads. These projects, identified by the Nepal government, were determined to be vital to the economic growth of Nepal; they are expected to generate $891 million in economic activity, a great return for a $500 million investment. Recognising the importance of these projects to the country’s growth, the Government of Nepal committed an additional $130 million of its own resources to the compact—the single largest up-front partner country contribution in MCC’s history.
Economic benefits of the Compact
The Electricity Transmission Project will construct 300 kilometres of transmission lines and three substations, to provide a more reliable source of electricity for nearly 23 million Nepalis. It will also create new jobs. One World Bank study looked at the jobs impact of a 1,200-kilometre regional transmission line, similar to the compact’s Electricity Transmission Project, and found that the project created 9,700 direct jobs in construction, operations and maintenance over a 25-year period. Additionally, the construction of the transmission line created secondary job growth of 75,000 formal jobs from 2006 to 2012. With such prospects, it is reasonable to expect that the MCC project in Nepal will generate similar results for Nepalis.
The Road Maintenance Project will improve up to 305 kilometres of strategic road network and is estimated to directly benefit 925,000 Nepali citizens by reducing the time and cost of travel on rehabilitated roads. This project is expected to generate jobs and economic value far beyond the $52 million investment.
MCC has a proven track record of generating positive economic impacts in partners countries that have successfully completed MCC compacts. For example, the Philippines, Vanuatu, Indonesia, and Mongolia are countries in the Asia Pacific region that have each completed a five-year compact. In fact, Indonesia and Mongolia are in the process of developing second compacts.
Moreover, MCC has a longstanding commitment to results and accountability, and as part of this commitment, we complete and publish reports and final evaluations of all completed compacts. For instance, in April 2020, the MCC published a report on the outcomes of the $350.7 million Malawi Compact, estimating that it will generate $768.4 million in net benefits for the citizens of Malawi in the next 20 years. By providing good quality data and committing to accountability, MCC consistently ranks high amongst development donors globally in the Aid Transparency Index.
What you’ve always wanted to know
Over the past six months, the media in Nepal have heavily covered the MCC Compact. Much of the reporting has focused on the internal discussions of the Nepal Communist Party and the government’s process to ratify the compact through Parliament, a requirement the government agreed to when signing the Compact in September 2017. To separate fact from fiction, it would be helpful to discuss what MCC is and its history in Nepal—and to understand why the grant exists in the first place.
The Millenium Challenge Corporation is an independent US government agency with a singular mission: reducing poverty through economic growth. Established in 2004, MCC is currently providing time-limited grants to 29 partner countries that have demonstrated a commitment to good governance, economic freedom, and investing in people.
The Corporation uses a data-driven, transparent process for identifying developing countries that are eligible for grant assistance. Once a country meets the minimum eligibility criteria, the country may be selected for a grant. Nepal became eligible in 2012 and was selected to develop an initial, smaller grant the same year. In 2014, Nepal was selected for a larger grant that eventually became the $500 million Nepal Compact. At each step in the process, Nepal’s government has requested the support.
All the MCC funded projects in the country were proposed by the Nepal government, in line with its own priorities. A team of government professionals worked together with MCC to identify needs and develop the projects. The Electricity Transmission Project and the Road Maintenance Project were jointly identified to be critical to the country’s economic growth.
Improving the economic output of our partner countries and improving the lives of their citizens is the sole goal of an MCC grant, and I would encourage keeping this sentiment in the centre of any conversation.
What do you think?
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