KATHMANDU, April 27: Prime Minister KP Sharma Oli has expressed dissatisfaction over the U.S. government's decision to shut down the Millennium Challenge Corporation (MCC) grant project.
After Donald Trump won the U.S. presidential election, the Department of Government Efficiency (DoGE), led by Elon Musk, announced the closure of the MCC. Despite ratification by the parliaments of both countries, the U.S. suspended the MCC unilaterally.
Prime Minister Oli criticized the reliance on foreign aid during the CPN-UML parliamentary party meeting on Saturday, indirectly referencing the MCC. He pointed out that although the parliaments of both countries had ratified the MCC, the U.S. unilaterally shut down the project. He also noted that while some countries might continue receiving MCC assistance, Nepal might not.
The MCC, a grant project worth about 550 million U.S. dollars (approximately Rs 75 billion), was initially halted after Donald Trump's election. Although there were signs in March that the project would resume, it has now been suspended once again.
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During the review of U.S. foreign aid, MCA Nepal granted permission in mid-March to proceed with certain activities under the Millennium Challenge Corporation (MCC) Nepal Compact.
On January 20, the U.S. President's office issued an executive order suspending the first phase of the MCC for 90 days. The agreement originally promised a grant of 500 million U.S. dollars for the MCC but later increased the grant by an additional 50 million dollars, bringing the total to 550 million U.S. dollars. The total investment in the MCC reached 746.7 million U.S. dollars, with the Nepalese government committing to invest 19.67 million dollars.
The MCC and the Nepalese government signed an agreement to construct a 315-kilometre-long, 400 kV transmission line; three 400 kV substations; and upgrade a 77-kilometer road from Bhaluwang in Dang to Shivkhola in Banke.
The introduction of the MCC project sparked significant controversy in Nepal. The MCC Nepal Compact received approval along with a 12-point explanatory note. After the MCC was suspended, the government has struggled to manage the budget. For the upcoming fiscal year, the National Planning Commission has indicated that foreign grants will make up 22% and foreign loans 30% of the total budget, which is set at 1.9 trillion rupees.
The increasing burden of foreign grants on the budget has added challenges to the Nepalese government's budget management after the U.S. suspended a grant of approximately 550 million dollars. The Ministry of Finance has stated that the suspension of U.S. aid will impact the budget and programs.
In 2022, USAID and Nepal signed a five-year development agreement worth 659 million dollars. While the government has spent some of the funds over the past two years, it has frozen other amounts.
The U.S. Agency for International Development (USAID) funds around three dozen programs operating through Nepal's budgetary system, and these programs have been affected. These programs involved $7.17 million and $58.73 million in collaboration with U.S. development partners.
The executive order has halted programs related to education, health, agriculture, and statistics, which were operating through Nepal's budget system. The future of USAID programs remains uncertain.
