For over seven decades since the establishment of diplomatic relations between Nepal and the United States in 1947, Nepal has consistently been a priority recipient of US grants. The aid received from the United States in the 1950s has greatly contributed to Nepal's progress in various sectors such as health, education, transportation, agriculture, and other social areas. Despite reductions in grant volumes over time, the United States remains a significant source of funding for Nepal's health, education, and agriculture sectors. As Nepal faces economic challenges, it may have to delay immunization programs if alternative funding sources are not secured.

Seven USAID Programs Halted

The Ministry of Finance announced that 7 programs in Nepal funded by the American Assistance Mission (USAID) have been halted. According to the ministry's spokesperson Shyam Prasad Bhandari, 4 ongoing programs in education, health, agriculture, and data, funded through the Nepali government's budget received from USAID, have been paused for 90 days. Additionally, 3 programs in Biodiversity, State and Local Government Strengthening, and Climate Uplifting Municipal Service, currently in the design phase, have also been stopped in accordance with the executive order issued by the US President on January 20, 2025.

The Ministry highlighted the long-standing support of the United States in Nepal's economic, social, and infrastructure development, with USAID programs running in the country since 1951.

Nepal’s Diplomatic Failure

The US government is currently reviewing its aid policy, including the Millennium Challenge Corporation (MCC), while Nepal's mission in Washington DC is currently without an ambassador. The mission is being managed by the deputy head of the mission.

Despite Lok Darshan Regmi being appointed as the ambassador to the USA six months ago and taking the oath of office before the president on December 1, 2024, he has yet to travel to DC to present his credentials.

For the past three months, he has been spending his time at home, delaying his official duties.

Regmi, who is known to be close to Prime Minister KP Sharma Oli, has strong supporters backing him. However, Nepal is facing challenges without an ambassador to represent its interests and engage with President Trump's core team. With numerous contacts in Congress and close ties to President Trump, Nepal needs to engage with them.

Due to Ambassador Regmi's absence from his duties, Nepal is unable to effectively present its case. This lack of representation is seen as a neglect of diplomatic and official protocols. Some are calling for Regmi to either take up his responsibilities in Washington or resign from his position. This situation is causing frustration among former diplomats, who see Regmi's actions as a challenge to the authority of the foreign ministry.

Government said number of projects funded by the United States have been put on hold after President Donald Trump suspended foreign development assistance.

President Donald Trump ordered a 90-day pause in US foreign development assistance on the day he returned to the White House, pending assessments of efficiency and consistency with U.S. foreign policy.

The Ministry of Finance said projects in the field of education, health, agriculture and statistics that were funded by the US Agency for International Development (USAID) and were implemented under the government’s budget had been halted for 90 days.

“Money for the projects that were being designed has not been received as the agreement for these programmes has not been signed yet,” a ministry statement said.

Last week, the government said two major infrastructure projects funded by the Millennium Challenge Corporation (MCC), a U.S. government aid agency, for the construction of a power transmission line and road improvement project had been paused for 90 days following the order.

MCC project postponed

A week after the USAID-funded project was suspended, a Ministry of Finance spokesperson stated that one of the key US cooperation programs in Nepal has been put on hold.

Joint Secretary Bhandari explained that the Ministry made the decision to postpone the program after receiving an email from the Millennium Challenge Corporation (MCC) informing them of the program's suspension. This move is believed to be a result of President Donald Trump's foreign aid reduction policy, which came into effect shortly after he took office

The USAID has recalled its personnel from missions worldwide in line with Trump's directive to align overseas spending with his priorities. Nepalese authorities were hoping the continuation of MCC because it is project of different nature. However, the MCC has informed the government that payments for activities funded under the Nepal Compact have been stopped due to a 90-day freeze mandated by an executive order issued by President Trump on January 20, 2025.

The Ministry of Finance reported that the MCC's email on February 14, 2025, indicated that ongoing projects under the compact agreement would be impacted by the payment suspension. Nepal signed the MCC Compact in September 2017, and it was ratified by Parliament in February 2022.

The Nepal Compact, which involves the construction of a 315-km, 400kV transmission line and upgrades to road infrastructure, received $500 million in funding from the MCC, with an additional $197 million committed by the Nepal government.

Concerns have been raised about potential project delays due to the funding freeze, as Nepal aims to complete all MCC-funded projects within a five-year timeframe that began in August 2023. Officials are currently evaluating the impact of the suspension and exploring measures to minimize disruptions.

The MCC is a US government agency dedicated to reducing global poverty through economic growth. The long-term effects of the suspension on Nepal's infrastructure goals and economic development remain uncertain.

Experts View

Experts suggest that the Nepal government should assess the economic consequences of losing US aid, as no other country or financial institution is likely to fill the void left by the USAID and the MCC.

Initially, the US government had only informed Nepal of the aid pause for USAID, not MCC. Despite the US side's assertion that Trump's executive order would not affect the Nepal compact, the recent decision to suspend disbursements for at least 90 days has cast doubt on the future of the compact.

The compact, signed in September 2017, was a contentious issue in Nepal, with critics arguing that certain provisions undermined the country's sovereignty.

Renowned development expert David Seddon from the United Kingdom warned that the suspension of US aid will have serious consequences for development and humanitarian efforts worldwide. No other country can match the level of funding provided by the US.

"Nepal will experience significant gaps in development funding in the coming years, impacting its development initiatives," Seddon stated during his recent visit to Nepal. He also raised concerns about the potential reduction in European grants due to the increased pressure to support Ukraine following the halt in US military aid.

Despite being aware of the new development for about ten days, MCA-Nepal officials reported that operations were continuing as usual, with no changes such as funding cuts or staff layoffs. However, payments after January 20 were not made, and new procurements were halted.

The agency had reopened the bidding process for a 297-kilometer transmission line construction project in November, with a bid submission deadline of January 30. The official confirmed that there were no instructions to stop the procurement process, so the tender process was ongoing.

Former Finance Minister Surendra Pandey anticipates a significant crisis due to the U.S. decision to halt disbursements. He also criticizes the Nepal government for not being adequately prepared to address the challenges arising from the suspension of U.S. aid.

"If the contract process is terminated, we will incur penalties with contractors. Additionally, we have already initiated land acquisition, which is a legal obligation that the government must fulfill. Now, the government must either reallocate funds from other projects to MCC projects or explore alternative sources of funding. However, can we afford to reduce spending on other projects to support MCC initiatives? Will Europe step in to provide investment if the U.S. suspends aid?" questioned Pandey.

Former Finance Secretary Rameshore Khanal is optimistic that the US will lift the sanctions after 90 days. However, USAID funding and priorities will be adjusted to align with President Trump's new agenda.

Khanal expressed hope that the US government will resume investment instruments and continue the MCC compact process. While some USAID projects may be reviewed to align with Trump's policies, MCC grants are expected to continue without suspension.

Can the US unilaterally withdraw the MCC?

Even though the agreement was established by the American Congress and approved by the Nepali Parliament, experts point out that the MCC contains a provision allowing the US to unilaterally withdraw from it if desired. A former Minister suggests that given Trump's approach, it is uncertain whether the MCC will remain in place.

Economists argue that Trump's focus on cutting social welfare spending does not necessarily mean that direct infrastructure investment will be halted. Former Secretary Khanal also emphasizes that the withdrawal process from the MCC is outlined in the agreement and can be initiated by either Nepal or the US after following the specified procedures.

What can Nepal do?

The Finance Ministry spokesperson, Bhandari, clarified that no letter has been sent to the American side regarding the postponement of the MCC. Bhandari stated that they have only been informed of a 90-day moratorium and have not requested anything beyond that.

If the projects under the MCC are not completed within five years of project implementation, the remaining aid amount will cease, and the unused funds will need to be returned.

Former Secretary Khanal suggested that Nepal should seek clarification from the American side on this matter. Given Nepal's limited financial resources, alternative options such as private sector involvement, seeking investment from India, or exploring other international funding sources may be considered.

Without any alternative country to provide grant support like the United States does, Nepal must wait for a response to the review and then devise a strategy accordingly, including the MCC.