With the promulgation of the new constitution and holding of elections, Nepal’s political transition has come close to an end. However, Nepal’s challenge now is to improve its infrastructure to make a high level of economic progress.

The recent agreement between Nepal and the U.S. Government’s Millennium Challenge Cooperation (MCC) is a step towards enhancing the infrastructure of Nepal, including in the areas of energy and road.

Finance Minister Gyanendra Bahadur Karki and Acting MCC CEO Jonathan Nash signed the agreement at the U.S. State Department in Washington, D.C. Deputy Secretary of State John J. Sullivan was also present at the signing ceremony.

According to a press release issued by the U.S. Embassy, the Nepal Compact, MCC’s first compact in South Asia, aims to strengthen Nepal’s energy sector, improve regional energy connectivity, and control transportation costs to encourage growth and private investment.

“Today, as we sign this $500 million MCC compact with Nepal, we are celebrating a new chapter in the U.S.-Nepal partnership,” Acting MCC CEO Jonathan Nash said. “This compact is designed to spur economic growth and private investment, and open new markets to benefit the economy, regional security and the broader global community.”

“As we celebrate the 70th anniversary of U.S.-Nepal relations, I am grateful we can point to this MCC compact as a clear demonstration of our strong partnership,” Deputy Secretary of State John J. Sullivan said.

“This compact of $500 million, combined with the Government of Nepal’s commitment of $130 million, will surely create a lasting impact on Nepal’s sustainable development for generations to come,” Nepali Finance Minister Gyanendra Bahadur Karki said.

The Government of Nepal’s commitment of an additional $130 million is the single largest up-front country contribution in MCC’s history.

With nearly half of the country living on less than three dollars a day, Nepal is one of the poorest countries in Asia. It continues to face extensive economic development challenges caused by decades of political transition, difficult labor relations, high transportation costs, and an inadequate supply of electricity. Natural disasters such as the earthquakes of 2015 and the recent floods continue to compound Nepal’s development challenges.

Based on a joint analysis conducted by MCC and the Government of Nepal, the compact will focus on two factors most significantly constraining the country’s growth: an inadequate supply of electricity and the high cost of transportation. MCC’s investment is expected to benefit about 23 million people. 

The Electricity Transmission Project is designed to transform Nepal’s power sector by expanding and strengthening the high voltage electricity transmission network to support new investments in generation. The project includes the construction of approximately 300 km of high voltage power lines, equivalent to one-third the length of Nepal; the addition of a second cross-border transmission line to facilitate greater electricity trade with India; activities to improve sector governance to increase private investment.

The Road Maintenance Project is designed to improve the maintenance regime in Nepal. It will include a matching fund to maintain up to 300 km of roads and incentivize the Government of Nepal to allocate more resources for periodic maintenance, particularly for key roads that are vital to the movement of goods and people in the country. This project will complement existing efforts by others to build new roads.

MCC’s work to strengthen institutions builds capacity to help countries withstand global threats such as natural disasters. The agency’s time-limited grant investments promote economic growth and help people lift themselves out of poverty, creating more stable, secure countries with new business opportunities. New procurement and business opportunities associated with the Nepal Compact will be announced in the coming months.