Nepal has achieved another key milestone in securing a grant of $500 million (approximately Rs51.5 billion) from the United States, as the board of the Millennium Challenge Corporation (MCC), an independent US government agency working to reduce global poverty through economic development, has approved the proposal to extend financial support to the country.

The latest development comes two weeks after the Nepali Cabinet endorsed the Ministry of Finance’s proposal to accept the grant assistance from the US agency.

Now US Congress needs to approve the grant assistance for Nepal. Following this, Nepal and the US will sign an agreement, most probably in September, following which funds will start flowing into Nepal.

The $500-million US grant support is part of the $630-million compact programme designed by the MCC for Nepal. To implement the programme, the Nepal government has expressed commitment to contribute $130 million, which is the single largest up-front country contribution in MCC’s history, says a statement issued by the US Embassy in Kathmandu.

“The compact with Nepal focuses on the power and transportation sectors to improve regional connectivity, spur private investment, drive growth, and reduce poverty,” the statement quotes Acting MCC CEO Jonathan Nash as saying.

The MCC board of directors selected Nepal for its compact programme in December 2014. Nepal was selected for the MCC programme “in recognition of the country’s efforts to establish rule of law and democratic institutions and its strong performance on MCC’s policy scorecard”.

Since Nepal’s selection, the government and the MCC have been scouting projects that can provide highest economic rate of return and reduce the incidence of poverty in Nepal.

After conducting a thorough study, the MCC had agreed to support two broad projects in Nepal: the Electricity Transmission Project and the Road Maintenance Project, as energy shortage and inferior transport network are two binding constraints for Nepal’s rapid economic growth.

Of the investment being made in Nepal, a bulk, or $520 million, will go towards development of 300 km of 400kV transmission lines from eastern to western parts of the country and three power substations. Most of the proposed transmission lines traverse hilly terrain, starting from close to the Kathmandu Valley and move to the west and then southwest to the Indian border.

Another $55 million will be used to maintain 305 km of road segments; the remaining amount will be used for activities like monitoring and evaluation of projects being implemented, hiring of procurement and fiscal agents, and covering other administrative expenses.

The project related to the energy sector is expected to have an impact on at least 72 percent of the households currently connected to the grid, while maintenance works on around 305 km of road segments will benefit 205,000 households across the country, according to the MCC.

“MCC’s grant investments promote economic growth and help people lift themselves out of poverty, creating more stable, secure countries with new business pportunities,” says the US Embassy statement. 

“New procurement and business opportunities associated with the Nepal compact will be announced in the coming months.”

All projects under the MCC’s compact programme must be completed exactly after five years of their implementation date. If not, the funds will go back to the US.

This is the first compact approved by the MCC’s board of directors under the Trump Administration.