A Boost to MCC Programs

Many Nepalis breathed a sigh of relief after the US government nodded the continuation of the projects under Millennium Challenge Corporation (MCC) Nepal Compact. While a broader review of foreign aid continues, the US government has approved the resumption of some MCC Compact programs that has instilled hopes in Nepal for her economic growth, stronger ties with the US, and improved confidence in its sensitive geopolitical positioning. The US government has pledged $500 million for the MCC Nepal Compact, which was signed in 2017 and endorsed in 2022. Nepal also committed $197 million. The MCC aims to improve Nepal's electricity transmission system and road network, both fundamental drivers of economic development. But just before and since its inception, the project has been contentious due to opposition from different communist groups who distrusted it. They charged MCC Compact with being a guise to expand US security interests and military influence in Nepal. Both American and Nepali authorities have outright denied such charges, and the agreement contains no reference to military involvement. It seems, therefore, that the opposition is based on political theatrics rather than any real threats to Nepal's sovereignty.

Under the Trump administration, the compact had encountered new obstacles. The administration temporarily suspended payments for MCC-backed projects as part of a broader effort to scrutinize foreign aid programs, halting a vital project in Nepal. A number of development projects, including in Nepal, were halted by President Trump's January 20, 2025, executive order, imposing a 90-day hold on foreign aid. Payments were suspended following this step, which affected the progress of essential infrastructure. There can be no doubt about the benefit of the MCC project to Nepal. The Compact's Transmission Project in the power sector will greatly boost Nepal's electricity supply by building three new substations and a 315-kilometer, 400 kV transmission line. Besides boosting domestic demand, this would make Nepal's power export chance to India greater, which may render the country into a regional power hub. The Road Maintenance Project will contribute towards enhancing Nepal's transport infrastructure, easing the mobility of people, goods, and services. The use of modern technology, including asphalt recycling, will enable long-term sustainability of our roads. The MCC Compact, in the meantime, is expected to deepen the relationship between the United States and Nepal that goes well beyond infrastructure.

Meanwhile, Nepal's qualification for the MCC award reflected its dedication to economic freedom, good governance, and investment in infrastructure. The MCC uses a competitive process to award the projects, and Nepal received this aid after it qualified for this as a nation with a sound level of freedom, democratic values, and human rights, which have helped enhance Nepal's reputation among international communities. As Nepal awaits further US foreign aid, all stakeholders must recognize the benefits of the MCC compact. The roads and the transmission lines that it finances will form the backbone of Nepal's economy in the future, creating new investment, trade, and industrialization opportunities. The recent step to permit partial operations, like commencing critical procurements and operational activities, is a testimony to the fact that MCC is still a high priority for Nepal and the US. From Nepal’s perspective, building close relations with the United States through economic collaboration is a necessity at a time when Nepal desires to balance its diplomatic relations with its giant neighbors, both of whom are emerging military and economic powers.