e Millennium Challenge Corporation is a U.S. Government agency designed to work with some of the poorest countries in the world. 

Established in January , MCC’s mission is to reduce poverty through the promotion of sustainable economic growth. Before a country 

can become eligible to receive assistance, MCC looks at their performance on  independent and transparent policy indicators. Countries 

that perform well on the indicators may be considered eligible for Compact Assistance.

Millennium

Challenge

Corporation

Reducing Poverty Through Growth

Issue Brief

MCC and the Use of Public

Financial Management Systems

The Paris Declaration on Aid Effectiveness commits donors to strengthening the public financial management 

(PFM) capacity of partner countries in a number of ways. First, it asks that they provide reliable, indicative commitments of aid over a multi-year framework and disburse aid in a timely and predictable fashion according to 

agreed schedules (Paris Declaration Indicator 7). Second, it urges reliance on transparent partner government 

budget and accounting mechanisms (Paris Declaration Indicator 5). Finally, it commits donors and partner countries, to implementing harmonized diagnostic reviews and performance assessment frameworks in PFM. 

MCC takes each of these commitments seriously, as reflected in its work with partner countries. MCC compact 

assistance is committed in full when the compact is signed, which enables the host country’s accountable entity, 

the partner government team that actually manages and implements the compact, to communicate projected 

medium-term budget information into the national finance system. To improve the short-term predictability of its 

aid, MCC has established a quarterly rolling annual disbursement forecast that is developed by and agreed with the 

accountable entity. 

In several countries, MCC is strengthening PFM systems by using partner countries’ Ministries of Finance to perform fiscal agent functions.1 This is the case in Honduras, Cape Verde, Tanzania, and Vanuatu. MCC requests financial reporting and independent auditing in addition to what these partner countries require, so it does not meet 

the Paris Declaration’s Indicator 5A criteria for national financial reporting and auditing procedures. However, 

MCC is generally using national budget execution procedures in these countries -- disbursements are included in 

national financial accounts, funds are subject to established budget execution procedures, and funds are processed 

through the established country treasury system. In El Salvador, the Millennium Challenge Account accountable 

entity FOMILENIO is utilizing the country’s national financial management system to provide all compact-related 

financial management. MCC is supporting additional PFM capacity development in El Salvador, as well as in 

Honduras, by funding a special fiscal oversight advisor. Finally, MCC offers capacity building assistance to address 

PFM weaknesses to partner countries upon request, even if countries choose to manage their compact using an 

external fiscal agent.

1 Fiscal agent responsibilities include cash management, budgeting, financial management system accounting, financial management systems reconciliations, approvals and authorizations, payment requests, taxes, and reporting. 

August 2008
2 Issue Brief: MCC and the Use of PublicFinancial Management Systems 

Towards the implementation of harmonized PFM diagnostics and performance assessment frameworks, MCC and 

its United States Government development community colleagues have identified in a new Inter-Agency Aid Effectiveness Action Plan the need to take an active role in ensuring tools like PEFA (the Public Expenditure and Financial Accountability framework) are transparent, of high-quality, and implemented consistently. MCC has also 

been contributing to the Development Assistance Committee’s Joint Venture on PFM, whose mandate includes the 

establishment of a mutually agreed PFM assessment framework.