U.S. President Donald Trump’s Executive Order has led to the suspension of $550 million in Millennium Challenge Corporation (MCC) funding for Nepal, impacting crucial infrastructure and energy projects under the Millennium Challenge Account (MCA) Nepal. Nepal’s Ministry of Finance has confirmed the suspension.
A notice issued by the Finance Minister’s secretariat states, “In an email sent by the U.S. aid agency MCC on February 14, concerned stakeholders were informed that activities funded by the MCC under the Compact signed between the Government of Nepal and the agency on September 14, 2017, have been halted in accordance with the executive order issued by the U.S. President on January 20, 2025, which enforces a 90-day suspension.”
The spokesperson for the Ministry of Finance, Shyam Prasad Bhandari, also confirmed to BBC Nepali Service that the MCC has been suspended for now.
This suspension affects key development projects, including power transmission line upgrades and road infrastructure improvements, which were expected to boost Nepal’s economic growth.
The U.S. foreign aid agency, the Millennium Challenge Corporation (MCC), had recently increased the funding for Nepal’s compact from $500 million to $550 million.
The additional $50 million in funding was allocated to the Electricity Transmission Project under the compact. According to the MCC, this additional funding was intended to help cover rising project costs and ensure successful implementation.
MCC officials explained that the additional funding would help address cost overruns and enable the timely completion of procurement processes. The funds would also ensure adequate contingencies for necessary operational adjustments during construction. Despite increased costs, the MCC had stated that the economic rate of return for the electricity transmission project remained above 10%, reaffirming its viability and effectiveness.
The amendment to the MCC compact was agreed upon by the U.S. government and Nepal’s Ministry of Finance. It officially revised the budget allocation under Article 2.1 of the compact agreement, increasing the MCC grant to $525,977,559.41. The amendment also updated the multi-year financial plan to reflect these changes.
Prior to this amendment, the MCC had officially notified the U.S. Congress of its intent to increase funding for Nepal’s compact to bridge the financial gap and ensure the successful implementation of its objectives. In a letter signed by the MCC’s Vice President for Congressional and Public Affairs, it was stated that additional resources were required to complete key infrastructure projects and promote sustainable economic growth in Nepal.
Originally signed in 2017, Nepal’s MCC compact had a budget of $500 million, primarily focused on electricity transmission and road maintenance projects. These initiatives were expected to strengthen Nepal’s power grid, enhance hydropower utilization, and improve the quality of major road networks. The compact officially entered into force on August 30, 2023, but rising costs necessitated additional funding.
Recently, the U.S. Department of Government Efficiency (DOGE) also announced the cancellation of various foreign aid programs, including two initiatives in Nepal: a $20 million program for “fiscal federalism” and a $19 million project for “biodiversity conservation.”
With the suspension of grants provided through the United States Agency for International Development (USAID), off-budget projects in Nepal have been particularly affected. According to Nepal’s Ministry of Finance, U.S. assistance is only partially integrated into Nepal’s budget, meaning that projects reliant on external funding have been directly impacted by this suspension.
Nepal and USAID last signed a five-year strategic partnership agreement worth $659 million on May 15, 2022. However, following Trump’s executive order, USAID notified the Ministry of Finance, non-governmental organizations, and nonprofit entities that all grant-funded programs were to be halted immediately.
In 2023, the U.S. provided $68 billion in aid to 176 countries, with Nepal ranking 16th among the recipients. The suspension of U.S. grants raises concerns about the future of Nepal’s externally funded development projects.
Suraj Ghimire
View More PostsSuraj Ghimire is a Nepali journalist and the online editor of Khasokhas. He focuses on political, social, migration, and international issues. He has also worked with various national television networks.
