Nepal, a small Himalayan nation bordering China, was in talks with Beijing over a massive infrastructure financing deal when the U.S. swooped in with a tempting counteroffer relating to MCC
Caught between two global powers, Nepal suddenly found itself in a high-stakes balancing act, weighing its long-standing ties with China against the lucrative incentives from Washington.
In a nation where the average yearly income is roughly $1,400, the American government would provide $500 million in grants over five years to upgrade the nation’s roads and energy grid.
The United States’ challenge to China’s influence in its own territory incensed Beijing leaders. However, following five years of contentious discussion, Nepal finally accepted the offer and ratified it in 2022 after providing $200 million of its own.
The Trump administration’s decision to halt foreign aid has now cast doubt on the project. Nepali leaders who supported the agreement despite opponents labeling them traitors and U.S. puppets are now questioning whether they made a grave error in placing their trust in the United States.
Rajendra Bajgain, a lawmaker from the ruling Nepali Congress party who had fervently supported the U.S. initiative, said, “This is quite shocking.”
MCC Funds suspended for Nepal
The Millennium Challenge Corporation (MCC) has informed the Nepali government that it has suspended payments for activities funded under the Nepal Compact in accordance with a 90-day moratorium imposed by an executive order of the US President on January 20, 2025.
According to the Ministry of Finance, MCC notified Nepal via email on February 14, 2025, that the payment suspension would have an impact on ongoing projects under the compact agreement. The MCC Compact was ratified by Parliament in February 2022 after Nepal signed it on September 15, 2017.
China sought to increase the skepticism. “Is it a Pandora’s box or a gift?” China’s Foreign Ministry spokesperson, Hua Chunying, stated during the debate in Nepal. “I’m afraid it will turn out like a Nepalese saying: It looks good, but you will find the meat difficult to chew.”
Reasons for suspension of MCC
The policy change has suspended the $500 million MCC grant to Nepal, which was intended to fund important infrastructure projects like a 315-kilometer, 400 kV transmission line and road renovations. The Nepali government has allocated an additional $197 million to these projects.
With a five-year timeline that started in August 2023 to finish all MCC-funded projects, the funding suspension has sparked worries about possible delays. Authorities are now evaluating the suspension’s effects and looking for ways to lessen any inconveniences.
Notably, this suspension is part of a larger change in U.S. policy. The executive order impacts many foreign aid programs, and the administration wants to ensure that these programs support its national interests.
The U.S. government organization, MCC, focuses on using economic progress to combat poverty worldwide.The current halt reflects the administration’s intention to reassess and realign U.S. foreign aid to better serve its strategic goals.
