... What's going on with MCC?

The uncertain future of a little-known development agency will have a bigger impact on U.S. energy diplomacy than most people realize

In the early 2000s, the Bush administration set out to make U.S. foreign assistance more targeted, more effective, and more transparent. It created the Millennium Challenge Corporation (MCC), an independent agency that channels U.S. support through ‘Compacts’: bilateral agreements with countries to jointly tackle the biggest barriers to economic growth.

DOGE hasn’t gone after MCC with the speed or ruthlessness it used at USAID, but the agency’s future is nevertheless in flux. In April, leadership informed the staff that DOGE had told them to expect significant budget reductions, and many people assumed the agency would soon be closed—partly because that’s how it got reported. But MCC is still operating—and the story is far from over.

DOGE’s (seemingly unilateral) declaration caught even administration officials, including at the National Security Council, off guard. And rumors of a pending shutdown were belied by the Presidential Budget Request, which recommended reducing the agency’s resources, but not dismantling it. Now, MCC is nearing the end of a formal review by the White House Office of Management and Budget (OMB) and the Department of State, which will determine what happens next.

MCC’s future is worth paying attention to because it has capabilities for investment that exist nowhere else in the U.S. government, and because its impact is massively outsized in comparison to its footprint. It offers invaluable foreign policy tools to this administration in the near term, and a model we should build on moving forward.

MCC has an outsized impact on energy investment

MCC is small. It employs only about 300 people–a small fraction of the 10,000 staff USAID deployed around the world. In 2024, it accounted for just 2% of U.S. foreign assistance obligations. It’s a barely perceptible blip on our national budget. But for global development, the future of MCC is a huge deal. And that’s especially true for energy poverty and energy investment.

MCC invests in tackling whatever the biggest constraints to economic growth are in a particular country. Often, this means foundational infrastructure in agriculture, transport, and–very often–energy. Seven of the twenty Compacts or Threshold Compacts currently signed or in implementation focus on electricity.

But more importantly, MCC provides energy sector support in ways that few other development institutions do.

• It invests in electricity quality, a prerequisite for economic transformation. Connecting households and businesses to electricity for the first time matters a lot–and that’s the issue that tends to get most attention from development funders. But we know that to drive economic growth, the electricity delivered to customers also needs to be reliable. All three MCC power sector Compacts currently in implementation (in Senegal, Nepal, and Kosovo) have reliability as their primary objective.

• It’s unique in its ability to fund crucial public infrastructure. Other development funders, including the US Development Finance Corporation, are well-equipped to help private investors with loans and guarantees. But there’s a whole lot of public infrastructure countries need to build before that private capital can be deployed, particularly transmission and distribution grids. Last year, about half MCC’s spending went to public infrastructure, including grid extension and strengthening. No other U.S. government agency does this. Outside of MCC, we lack the tools to meaningfully invest in public grid infrastructure, a crucial prerequisite to the private investment the Trump administration wants DFC to facilitate.

• It concentrates resources for maximum impact. MCC focuses its comparatively limited resources on the poorest, best-governed economies–and on the sectors and specific projects that will have the greatest impact on economic gains. Therefore, despite its small overall budget, each individual Compact can have an outsized impact: several hundred million dollars in grant capital to poor, often very small, countries in a single sector can be transformative.

Where things stand now

In advance of the Foreign Assistance Review being completed, MCC received waivers from OMB to continue with five of the eight Compacts that have already ‘entered into force’ (or started implementation). This includes two of the three focused on the electricity sector. Although OMB’s final recommendations to State have not been made public, we can assume they align fairly closely with their waiver decisions.

MCC has received waivers to continue 2 of 3 power sector Compacts currently underway

Other energy-focused Compacts have been signed but haven’t yet started implementation, including in Sierra Leone ($480 million), Belize ($125 million), and a Threshold Compact in Mauritania ($27 million).

What to watch for next

• MCC Board decision on which Compacts move forward. OMB has made its recommendations. But the State Department still has the opportunity to provide input, and the MCC Board (chaired by State) will ultimately make the decision. Some board members may push for additional Compacts to be saved, especially since MCC can provide massive complements to their own agencies’ portfolios.

• A potential fight over what happens to MCC as an institution. At this point, it seems likely the agency will live on–but perhaps not as a standalone institution. Various documents in circulation propose folding MCC into DFC, for example. If the goal is efficiency and effectiveness, I’m skeptical that folding everything into one mega-bureaucracy is the answer. But I do expect some concerted effort to tie MCC more closely to the DFC and to broader geopolitical priorities.

• A changing mandate? There’s going to be increased pressure on MCC to explicitly advance strategic US priorities and foreign policy goals, and perhaps a push to enact that change in legislation. Supporters of the agency’s traditional anti-poverty mandate won’t love that: MCC has earned its reputation for data-driven, non-political focus on economic growth. But I think there are opportunities to link MCC investments to foreign policy priorities in ways that expand, rather than dilute, its impact. One option would be to double down on its successes in the energy sector, especially in countries where energy insecurity puts US foreign policy goals at risk. See one of our ideas here, and a great piece from the Atlantic Council’s Aubry Hruby on how MCC could support minerals investment.

The next decade is going to be full of important fights over how to reinvent US foreign policy now that traditional structures, assumptions, and alliances have been scrambled. Regardless of whether you come at those debates from the left or right, it’s in your interest to build on MCC–not tear it down.