The Millennium Challenge Corporation (MCC) has published its Selection Criteria and Methodology Report for Fiscal Year 2026 in the Federal Register. Released on October 9, 2025, this notice fulfills statutory requirements under the Millennium Challenge Act of 2003. It outlines how MCC's Board of Directors will evaluate and select countries for assistance programs aimed at promoting economic growth and poverty reduction. The report introduces updated income categories for country assessments and reinforces hard hurdles on personal freedom and corruption control. This development is significant as it shapes U.S. foreign aid allocation, potentially influencing bilateral relations and global development efforts.
Background and Statutory Foundation
The MCC operates under the Millennium Challenge Act of 2003, which mandates the publication of selection criteria each fiscal year. Section 608(b) of the Act requires this report to detail how the Board identifies eligible countries based on their commitment to just governance, economic freedom, and investments in people. The FY 2026 report builds on prior iterations but incorporates changes from the Millennium Challenge Corporation Candidate Country Reform Act, expanding the pool to include certain upper middle-income countries with gross national income per capita up to $7,855.
Key players include the MCC Board, chaired by the Secretary of State, and third-party data providers such as the World Bank and Freedom House, which supply the objective indicators. The report attributes a waiver for Azerbaijan to President Trump, allowing its inclusion as a candidate country despite prior restrictions under the United States Freedom Support Act Section 907. This adjustment highlights the interplay between legislative mandates and executive actions in foreign policy.
Historically, MCC has used scorecards since its inception in 2004 to ensure transparency and comparability. Precedents like the annual updates to indicators reflect ongoing efforts to align with evolving global standards, such as incorporating measures for women's economic participation and natural resource protection.
Evaluation Process and Income Categories
MCC evaluates countries by categorizing them into three income groups to mitigate income bias in performance assessments. For FY 2026, these are nations with GNI per capita of $2,155 or less, those between $2,156 and $4,495, and a new group from $4,496 to $7,855. This structure ensures fair comparisons among peers, drawing from World Bank data.
The Board assesses three main factors: policy performance via scorecards, opportunities for shared prosperity, and funding availability. Scorecards comprise 22 indicators across three categories—ruling justly, encouraging economic freedom, and investing in people. To pass, a country must exceed the median in its group on at least 11 indicators, including hard hurdles on personal freedom (minimum score of 25 out of 60) and either control of corruption or government accountability.
The report notes that the Board may consult additional sources, such as U.S. Embassy insights, to interpret scorecard data, acknowledging limitations like data lags. For instance, it emphasizes examining a country's trajectory on corruption control when only one of the dual indicators is passed.
Key Criteria and Indicators
Under ruling justly, indicators include control of corruption, government accountability, personal freedom, freedom of information, government effectiveness, and rule of law. The personal freedom hard hurdle underscores MCC's commitment to partnering with nations that uphold basic rights, as failing it disqualifies a country regardless of other scores.
Economic freedom indicators cover business start-up, inflation (must be 15 percent or less), regulatory quality, trade policy, women in the economy, property and land rights, access to credit, employment opportunity, international market access, and market competitiveness. These aim to gauge a country's openness to private sector growth and global integration.
Investing in people includes health expenditures, chronic disease prevalence, child health, natural resource protection, workforce development, and girls' education, tailored by income level (primary for lowest, secondary for middle, upper secondary for highest).
The report stresses that these indicators are proxies for broader policies linked to sustainable growth, selected for their coverage, transparency, and objectivity.
Considerations for Different Program Types
For first-time compacts, the Board prioritizes countries passing scorecards and demonstrating a positive reform trajectory, alongside MCC's capacity to fund meaningful programs. Subsequent compacts require successful prior implementation, improved policy performance, and commitment to sector reforms. The report details metrics like political will, management capacity, and results achievement, as outlined in Appendix D.
Concurrent compacts, authorized under Section 609(k), focus on regional integration and require progress on existing agreements. Threshold programs target countries showing commitment but falling short on criteria, with potential for future compact eligibility.
A new note addresses countries at risk of transitioning out of eligibility due to income growth, where the Board weighs access to alternative financing and policy strength.
Perspectives and Implications
Stakeholders view MCC's approach as a model for results-oriented aid, promoting accountability without endorsing specific reforms. Critics, however, argue that rigid indicators may overlook contextual nuances, such as geopolitical factors. Short-term implications include potential shifts in aid recipients, with the expanded upper middle-income category possibly including nations like Indonesia or Ukraine. Long-term, this could enhance U.S. influence in strategic regions by tying aid to governance improvements.
Different perspectives emerge from development experts who praise the emphasis on corruption control, while some policymakers highlight alignment with America First priorities, such as facilitating U.S. business investments.
In summary, the FY 2026 criteria reinforce MCC's data-driven framework while adapting to legislative changes. Potential next steps involve the Board's December selections, ongoing indicator reviews, and consultations to refine methodologies. Challenges include balancing objectivity with real-time events, ensuring equitable access for transitioning economies, and navigating funding constraints amid global uncertainties.