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GAO Questions Impact Of Vanuatu Development Funding,
by Mike Godfrey, Tax-News.com, Washington
Monday, July 30, 2007
A report by the US Government Accountability Office (GAO) has called into question
the estimated benefit to the Vanuatu economy of US Millennium Challenge Corporation
funding.
After reviewing the MCC's analyses and meeting with officials and business
owners in Vanuatu, as well as with other donors, the GAO recommended in its report
that the Chief Executive Officer of MCC revise the public reporting of the Vanuatu
compact's projected impact. It also called on the MCC to assess whether similar
reporting in other compacts accurately reflects underlying analyses, and to improve
its economic analyses by more fully accounting for risks to project benefits.
The MCC did not directly address GAO's recommendations, but commented that it
had not intended to make misleading statements, and that its portrayal of projected
results was factual and consistent with underlying data.
According to the GAO, the MCC's portrayal of the projected impact does not
reflect its underlying data. The Commission states that per capita income will
increase by approximately $200 (15%) by 2010 and by $488 (37%) by 2015
as a result of the funding. However, MCC's underlying data shows that these figures
represent the sum of individual years' gains in per capita income relative to
2005, and that actual gains will be $51 (3.9%) in 2010 and $61 (4.6%) in
2015. The MCC also stated that GDP will increase by an additional 3% a year,
but its data shows that after GDP growth of 6% in 2007, the economy's growth
will continue at about 3%, as it would without the compact.
The MCC suggested that the compact will benefit approximately 65,000 poor, rural
inhabitants, but the GAO report noted that this statement does not identify
the financial benefits that accrue to the rural poor, or reflect its own analysis
that 57% of benefits go to others.
The GAO identified five key risks that could affect the compact's projected
impacts: (1) Cost estimate contingencies may not be sufficient to cover project
overruns. (2) Compact benefits will likely accrue more slowly than MCC projected.
(3) Benefit estimates assume continued maintenance, but MCC's ability to ensure
maintenance will end in 2011, and Vanuatu's maintenance record is poor. (4)
Induced benefits depend on businesses' and residents' response to new opportunities.
(5) Efficiency gains, such as time saved in transit, may not increase per capita
income.
"Our analysis of these areas of risk illustrates the extent that MCC's
projections are dependent on assumptions of immediate realization of benefits,
long-term maintenance, realization of induced benefits, and benefits from efficiency
gains," the GAO stated.
In March 2006, the Millennium Challenge Corporation signed a five-year $65.69
million Compact grant agreement with Vanuatu, an aid package that was expected
to increase average income per capita by 15% over five years.
First proposed by President George W. Bush in 2003, the Millennium Challenge
Corporation (MCC) was established on January 23, 2004 to administer the Millennium
Challenge Account (MCA), a mechanism in which development assistance is provided
to those countries that rule justly, invest in their people, and encourage economic
freedom.
The Compact consists of around eleven infrastructure projects — including
roads, wharfs, an airstrip and warehouses — that will help poor, rural
agricultural producers and providers of tourist-related goods and services reduce
transportation costs and improve access to transportation services.
The Compact also covers institutional strengthening efforts and policy reform
initiatives in Vanuatu's Public Works Department, including: provision of plant
and equipment for maintenance; introduction of service performance contracts;
establishment of local community maintenance schemes; and introduction of user
fees.
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