China has agreed to increase its annual grant to RMB 800 million (Rs 12.9 billion) from the current RMB 150 million while the US agency, Millennium Challenge Corporation (MCC) on Wednesday put Nepal under its Compact Program so that Nepal could get US grant between $100 million and $600 million (Rs 59.98 billion). MCC is a US foreign aid agency established to help fight global poverty.

Finance Ministry officials said China has recently agreed to increase its grant to RMB 800 million to Nepal. Finance Secretary Suman Sharma confirmed that a government team led by him is heading to China on Monday to sign an agreement with China to this effect.

An MCC board meeting on Wednesday voted to make Nepal eligible for a compact programme, MCC’s large-scale investment programme considering Nepal’s consistent strong performance on the MCC’s eligibility scorecard as well as its progress in institutionalising democratic progress, according to a statement posted on the MCC website. “The government of Nepal has made great progress in establishing democratic institutions that are responsive to its citizens,” MCC CEO Dana J Hyde said in the statement. “The board’s decision provides an opportunity for the United States to deepen its bilateral relationship with Nepal and help improve the lives of the Nepali people.”

According to the Finance Ministry, Hyde also made a phone call to Prime Minister Sushil Koirala on Thursday night and informed about the board’s decision to select Nepal as a recipient country of the Compact Program. During the conversation, Koirala expressed his happiness and thanked the US government for the assistance.

In 2011, Nepal was selected as eligible for the MCC threshold programme. There are two primary types of MCC grants—compact and threshold. Compacts are large five-year grants for countries that qualify MCC’s eligibility criteria, whereas threshold programmes are smaller grants awarded to countries that come close to passing these criteria and are firmly committed to improving their policy performance.

The government expects to invest the US assistance through MCC in the areas of power and road, based on the findings of a study carried out by a joint team of Nepal government and the MCC. The study had identified four constraints—policy inconsistencies, power crisis, poor road network and rigid industrial and labour laws—to realising Nepal’s economic potential.

“We have sought US investment in power and road projects and the aid may come for single or both sectors,” said Madhu Marasini, chief of the international cooperation coordination division at the Finance Ministry. According to him, an MCC team will visit Nepal in January to discuss the matter.

“We will also hold a meeting with the line ministry about the prospective projects to be financed with the US aid,” he added.

Interestingly, both China and the US have announced increasing assistance to Nepal after the southern neighbour, India, signed an agreement with Nepal for the $1 billion line of credit during Indian Prime Minister Narendra Modi’s visit to Nepal in November.

Finance Secretary Sharma said the two largest economies increasing aid to Nepal is a great achievement for the country. While the US has been providing assistance to Nepal through USAID, another aid window, China has been providing loan assistance through its Export-Import Bank. In the fiscal year 2012-13, the US government disbursed $672 million while China allocated $341 million, according to the Development Cooperation Report of the Finance Ministry.

According to Sharma, Nepal and China will also discuss issues of trade facilitation measures, market access to Nepali goods in the Chinese market, customs harmonisation, cooperation in the energy sector and opening a branch of a Chinese Bank in Nepal. The Nepal Rastra Bank and People’s Bank of China last year inked a memorandum of understanding enabling Nepal to invest in Chinese securities.