A recent executive order of US President Donald Trump to pause for review all American assistance funded by or through the State Department and the US Agency for International Development (USAID) has affected at least four projects run by the government in partnership with USAID.

Moreover, as many as 300 NGOs, consultancies, and nonprofits that have been receiving aid and financial assistance directly from the agency will be affected for at least three months.

As of now, there has been no communication on a review of the US aid provided through the Millennium Challenge Corporation (MCC), military and security-related assistance, or other support provided to the Nepal Army and other Nepali security agencies, including on disaster response.

In May 2022, the government of Nepal and the USAID had signed a development objective agreement (DOGA). Under this scheme, the government received four projects under the on-budget-on treasury arrangement, which have now been paused for 90 days, Mahesh Bhattarai, spokesperson at the Ministry of Finance, told the Post.

Meanwhile, US envoy Dean Thompson met Foreign Secretary Amrit Bahadur Rai on Monday and discussed the latest aid cuts announced by the new Trump administration.

In the meeting, various aspects of Nepal-US relations, including economic engagements, were discussed, said the foreign ministry.

The four projects that have received financial aid from the agency but will be stalled for next three months are: USAID Health Direct Financing Project, USAID Agricultural Direct Financing Project, USAID Education Direct Financing Project, and USAID Inclusive Policy Direct Financing Project.

The budget for the USAID Health Direct Financing Project is $25 million, aimed at improving health outcomes in Nepal. It provides financial support to the federal Ministry of Health and Population, the Ministry of Social Development in Karnali Province, and three local governments of Karnali Province. The project was signed on April 3, 2023.

Likewise, the USAID Agricultural Direct Financing Project, launched on September 25 last year with a budget of $21 million, is a government-to-government, on-treasury agreement designed to boost food security. It aims to help 69,000 households across 53,000 hectares adopt new technologies and agricultural practices.

In March 2024, under the USAID Education Direct Financing Project, the US announced up to $85 million over five years, subject to the availability of funds, to expand access to quality education for children in Nepal, particularly focusing on marginalized youth and early grade students.

According to a letter from the USAID, the aid for these projects has been paused for 90 days. The finance ministry has also been informed not to create any financial burden on the agency during this period.

The US State Department on Sunday released a statement confirming that, consistent with President Trump’s Executive Order on Reevaluating and Realigning United States Foreign Aid, Secretary Marco Rubio has paused all US foreign assistance funded by or through the State Department and USAID for review. The review aims to ensure that these programmes are efficient and consistent with US foreign policy under the America First agenda, said the statement.

“President Trump stated clearly that the United States is no longer going to blindly dole out money with no return for the American people. Reviewing and realigning foreign assistance on behalf of hardworking taxpayers is not just the right thing to do, it is a moral imperative. The Secretary is proud to protect America’s investment with a deliberate and judicious review of how we spend foreign assistance dollars overseas,” said the State Department statement.

As US Secretary of State Marco Rubio has said, “Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?”

The Nepal government and the USAID had signed a five-year strategic plan and committed to investing $659 million as both on-budget and off-treasury funding.

The executive order also paused the budget of as many as 20 INGOs and around 300 NGOs, consultancies, and nonprofit companies for the next 90 days.

The Nepal government, with support of INGOs, is running 21 key projects in the country, according to the finance ministry, with a budget of around $200 million committed for 2021 to 2029. Half of this budget has already been disbursed.

Over 300 such NGOs, consultancy and nonprofit companies are affected by the decision, Ram Prasad Subedi, president of the NGO Federation Nepal, said.

Some projects and programs in Nepal that are not aligned with the priorities of the new US administration like nutrition, climate change and LGBTQI issues will also be affected, according to Subedi.

However, the new pause will not impact the MCC, where the US government has invested $500 million and the Nepal government $197.

“There is no impact on MCC [projects] yet,” said Bhattarai.

The MCC board has recently approved an additional $50 million for the MCA-Nepal Compact. Since the MCA-Nepal is an independent special funding vehicle and a joint project between the US government and Nepal, it is unlikely to be paused, according to a senior official at the finance ministry.

Impact on health sector

Meanwhile, officials from the Ministry of Health and Population held several rounds of meetings on Monday with their counterparts from the Ministry of Finance to discuss Trump’s aid freeze.

Officials from both ministries agreed that the suspension could seriously impact the healthcare sector, even though only a small portion of US aid comes through direct government funding.

“Health Programmes under Government-to-Government (G2G) agreements, where the US government provides $5 million a year, will be affected by the new US decision to suspend all foreign aid,” said Dr Roshan Pokhrel, secretary at the Ministry of Health and Population. “But service delivery will not be affected, as we have been funding it ourselves.”

Health Ministry officials said the US had recently pledged $25 million in budgetary support for five years in the health sector.

“It has already been two and a half years since the US started providing budgetary support to health. They allocate $5 million a year, which we spend on training health workers and conducting awareness programmes,” said Bhim Sapkota, chief of the Health Coordination Division under the Health Ministry. “We have already spent around $3 million this year, and we have been instructed not to use US money to continue the ongoing programmes.”

Officials said that even if the contribution of the US government to Nepal’s health budget is not big, its decision to suspend aid could affect assistance from various UN agencies and others.

“The planned micronutrient survey, which was to be conducted after 10 years, has been halted by the US decision. The fate of the demographic health survey has become uncertain, and surveillance of vaccine-preventable diseases will also be stopped,” an official at the Health Ministry told the post, asking not to be named as he is not authorised to speak to the media.

“Assistance from UN agencies, including the World Health Organisation, UNICEF, and Global Alliance for Vaccine Alliance (GAVI), among others, could also be affected.”

Multiple former and incumbent health officials the Post talked to agreed that assistance provided by the US government through international non-governmental organisations (INGOs and non-governmental organisations (NGOs) are not transparent, and that their overhead costs are huge.

“INGOs and NGOs design programmes on their own, but much of the funds are spent on management including office costs, vehicle purchases, staff management, foreign consultants, and more,” said Dr Mingmar Gyelgen Sherpa, former director general of the Department of Health Services.

“At the grassroots level, such organisations and programmes do not have much impact, so we should not make a hue and cry over the US decision to suspend foreign aid.”

“Our government officials and ministers cannot make these organisations spend on specific sectors,” said another official at the health ministry. “They [INGOs] impose rigid conditions, which our government mechanisms cannot meet and, as a result, they divert assistance to NGOs, which focus mainly on intangible programmes—training, awareness, research, documentation and seminars.”

Experts say that many questions can be raised about the transparency of foreign aid and the negotiating capacity of government officials, but even if only 10 percent of the allocated funds are spent effectively, it would be significant for Nepal.

“We are in the process of making the budget for the new fiscal year, and we have been informed by the UN and US agencies about the US government’s decision to suspend aid,” said Dr Bibek Kumar Lal. “This decision will create pressure on the budget-making process. Our own budget cannot replace all the programmes funded by the US government and its organisations.”