Nepal Listed as Eligible Country for U.S. Assistance in Fiscal Year 2026

Nepal has been named as a candidate country for a Millennium Challenge Corporation (MCC) compact for Fiscal Year (FY) 2026, according to the recently published MCC Candidate Country Report. The report, which is the first of three required by the U.S. government, identifies nations that meet the necessary per capita income and legal eligibility requirements to be considered for MCC’s development assistance.

Nepal’s inclusion on the list of candidate countries for FY 2026 is based on its per capita income, which is not greater than the World Bank’s threshold of $7,855 gross national income per capita. This status allows the Millennium Challenge Corporation Board of Directors to evaluate Nepal’s policy performance across several indicators, including its commitment to democratic governance, economic freedom, and investments in its people.

The MCC’s process is rigorous and relies on a scorecard of 20 independent, third-party indicators. To become an “eligible country” for a compact, a candidate must pass at least 10 indicators, including the crucial “Control of Corruption” indicator and either the “Political Rights” or “Civil Liberties” indicator. Nepal previously qualified for and signed its $500 million compact with the MCC in 2017, which was ratified by its parliament in 2022. This existing compact is a five-year program focused on improving Nepal’s energy and transportation sectors, with a goal to spur economic growth and reduce poverty.

The current MCC Nepal Compact is a significant investment aimed at addressing key economic constraints. Its two main projects, the Electricity Transmission Project and the Road Maintenance Project, are designed to increase the reliability of Nepal’s electricity supply and lower transportation costs. The Government of Nepal has contributed an additional $197 million to the compact, marking the largest upfront partner country contribution in the MCC’s history. The program officially came into force on August 30, 2023.  

Despite the progress in poverty reduction, largely fueled by remittances from Nepalese working abroad, Nepal’s economic growth continues to lag behind its regional peers. The country’s economy is projected to grow by 4.5% in FY 2025, with an expected annual average of 5.4% in FY 2026-2027. However, structural challenges remain, including low productivity, a stagnant industrial sector, and a heavy reliance on informal employment.

Recent reports from the World Bank emphasize that for Nepal to reach its full economic potential, it needs to implement key reforms. These reforms include improving the returns on migration, boosting exports, and strengthening the legal and regulatory frameworks for its promising hydropower sector. The ongoing MCC projects are seen as a vital component of this broader effort to address the infrastructure deficits that have long hindered the country’s development and job creation.

Nepal is one of many nations on the MCC’s list for consideration. The report also identifies several countries that would have been candidates but are prohibited from receiving assistance due to specific legal provisions. These include nations barred due to military coups, such as Burkina Faso, Burma, Guinea, Mali, Niger, and Sudan. Other countries, like Burma, Eritrea, South Sudan, and North Korea, are ineligible due to human rights concerns and human trafficking records. Ghana is prohibited due to a debt default restriction. Iran, North Korea, and Syria are ineligible due to numerous restrictions, with human trafficking being a key factor for all three.

Additionally, some countries are only prohibited under certain conditions. For instance, Haiti, Sri Lanka, and Zimbabwe are ineligible unless the U.S. Secretary of State provides specific certifications. Azerbaijan is also ineligible due to section 907 of the FREEDOM Support Act, while Venezuela and Nicaragua are barred because of their foreign policy stances.