KATHMANDU, Feb 15: Development partners in Nepal have begun discussions to address potential funding gaps as the new administration in the US reviews USAID funding worldwide, including Nepal.
At least three Western diplomats Republica spoke to said they are closely monitoring how the review process unfolds following the Donald J. Trump administration’s 90-day funding freeze. “We are waiting to see how the review will impact ongoing USAID-funded projects in critical sectors such as health and education. We will have to realign our support to Nepal accordingly,” said a European diplomat, requesting anonymity.
USAID, a key development assistance agency of the US government, has been a major donor to Nepal since 1954, providing aid entirely in the form of grants. Any significant cuts in USAID funding would severely impact Nepal’s development programs, particularly in health, education, and infrastructure, affecting several ongoing projects. This will also significantly impact Nepal in terms of achieving the Sustainable Development Goals (SDGs).
Development partners have agreed in principle to step in and support sectors that may face funding shortages due to the USAID review. “Detailed discussions on how and who will fill the gap, if necessary, will begin once the US administration completes its review,” the diplomat added. The ongoing discussions also include reevaluating priorities for development assistance in Nepal so that support to the critical sectors are maintained.
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Beyond bilateral donor agencies, the UNDP and other specialized UN agencies will also be aligning their funding strategies to mitigate the potential impact of USAID’s funding cuts. Their goal is to ensure that critical projects in health, education, and other essential sectors remain operational.
President Trump’s executive order to pause all US-funded assistance through the State Department and USAID for 90 days is already affecting Nepal. With uncertainty surrounding whether funding will resume after the pause—during which the US government will "reevaluate and realign" its foreign aid—concerns are growing over Nepal’s status in US foreign assistance priorities.
Major USAID-co-financed projects in the current Fiscal Year include the USAID Health Direct Financing Project, USAID Agriculture Direct Financing Project, USAID Education Direct Financing Project, and USAID Inclusive Policy Direct Financing Project. These projects have been temporarily stalled, disrupting initiatives aimed at improving health outcomes, enhancing food security and expanding quality education.
The Finance Ministry has instructed project-implementing partners to halt the implementation of certain USAID-funded projects for 90 days. This decision follows a USAID Nepal letter requesting a temporary suspension of grant assistance for four projects under the Development Objective Agreement signed in May 2022.
Among the affected programs, critical initiatives like breastfeeding support services, part of the USAID-funded Integrated Nutrition Program, have been suspended. This five-year initiative, launched in January, aimed to improve infant health in a country where nearly 50,000 babies under the age of one die annually.
With a $72 million budget primarily directed toward the health sector, the program also supported food production and safety to combat malnutrition. The funding pause has additionally impacted the Early Grade Learning Program (EGLP), which was set to run in 48 districts until 2028.
Nepal received $411 million in USAID support in the last fiscal year alone. Finance Ministry officials have already begun internal discussions on alternative funding mechanisms should USAID completely withdraw its ongoing support. Given Nepal’s limited resources, officials stated they would seek additional contributions from other donor agencies to fill critical funding gaps or reallocate resources from non-essential sectors to maintain essential programs.
