In a blow to Nepal’s development aspirations, the Trump administration has decided to shut down Millennium Challenge Corporation (MCC), another US aid agency that has been providing support to core infrastructure development in several countries including Nepal. The decision was taken by billionaire Elon Musk’s Department of Government Efficiency (DOGE), a Trump administration initiative.

Nepal and the MCC signed an agreement in September 2017 to execute energy and road upgrade projects, whereby the US would pump in $500 million in aid. Nepal, for its side, would inject $150 million, an amount which was later jacked up to $197 million. The total investment in road upgrade and transmission line projects under the MCC has reached $697 million. It could have gone up to $749 as the MCC board had decided to pour another $50 million into the project to fill the funding gap.

“Officially, we have not received any communication from the US side but unofficially they have communicated about the elimination of the MCC Nepal Compact,” Yuba Raj Khatiwada, economic and development adviser to Prime Minister KP Sharma Oli, told the Post.

Once an official confirmation is received, the government plans to make a formal request to the US government to resume the financial support that it has been receiving through the MCC for its two projects, whose future has now become uncertain.

On February 18, the MCC notified the Nepal government that payments related to activities funded under the Nepal Compact had been halted, in compliance with a 90-day freeze imposed by an executive order of US President Donald Trump on January 20, 2025.

With the three-month period now over, DOGE has decided to shut down US aid programmes that span over 40 different countries.

But the back to back decisions taken by the Trump administration to eliminate the United States Agency for Development (USAID) and the MCC have raised several questions about the consistency of US policy on its economic and developmental assistance to developing nations like Nepal.

In order to execute the two MCC projects in Nepal, an oversight body, the MCA-Nepal, was created, but it landed in controversy due to opposition from various sections who labeled it as part of the US Indo-Pacific Strategy (IPS).

Despite the criticism and opposition, Nepal’s Parliament in February 2022 ratified the Compact, paving the way for its implementation within five years.

Finally, the MCC Nepal Compact came into force in August 2023 and set a five-year deadline for the completion of cross-border transmission line projects, expansion of domestic energy transmission line and upgrade of a section of the East West Highway. A multi-million-dollar tender was called to execute these projects.

“Our aim was to complete these projects on time,” Khatiwada said. “As the MCC was ratified by Parliament, we will try to make the US reconsider its decision to abruptly shut down the project.”

As the MCC was ratified by the House, and it has status like a treaty, Nepal would request Washington to reconsider the decision. We hope the US administration will take serious note of our request,” Khatiwada said.

Unlike Nepal, very few countries have ratified the MCC from Parliament. The MCC was established by Republican US President George W. Bush in 2004 in order to reduce poverty and promote economic growth around the world.

After USAID, the prime US aid agency was eliminated, the axe has now fallen on the MCC, and its global operations are being shut down, according to multiple media reports.

Though official figures are yet to be tallied, some US media reports have said that as many as 34 USAID projects worth Rs46.12 billion have been permanently terminated in Nepal.

The move to shut down the MCC comes as part of an unprecedented push by President Trump and his adviser Musk to shrink the federal government, saying US taxpayer money is misspent, Reuters reports

The MCC staff were told in a meeting on Wednesday that all of the agency’s programmes will be closed and staff numbers would be minimised, Reuters reported citing a recording of the meeting.

“Foreign aid is not a priority for the administration and so MCC’s work needs to wind down,” Kyeh Kim, a senior MCC official, told staff.

When countries like the US abandon projects in the middle of their progression, it comes as a serious blow to the developing countries like Nepal, said Khatiwada, who earlier served as finance minister, Nepal Rastra Bank governor, and Nepal’s ambassador to the US.

“The US should not leave projects midway. Both the MCC projects are considered national priority projects, so we have to complete them at any cost. This is our liability, accountability and responsibility and equally, it is also the responsibility of the US government to help with the completion of the projects,” said Khatiwada.

The back-to-back decision to terminate billions of dollars of US aid, grants and economic assistance also hint at policy inconsistency within the US administration, Khatiwada added.

As per the CNN, on Tuesday, MCC employees were notified via email that “there will soon be a significant reduction” in staff and programmes, just a week after DOGE arrived at the MCC, a source familiar with the matter told the channel. The source added that employees could be placed on administrative leave as early as May 5.

“The workforce reduction plan is to eliminate all employees except its acting CEO, according to the source, as the agency is statutorily required to have a leader. The MCC, which was created by Congress in 2004, gives ‘time-limited grants’ to dozens of developing countries, including Ukraine, El Salvador and Nepal, for infrastructure and policy reform,” said the CNN report.

The MCC’s residential mission office in Nepal is yet to communicate the DOGE decision to its staff.

“It might take a few more days to receive the communication,” an MCA Nepal official told the Post. “By early next week, we will have a clear picture.”

An MCC employee told Reuters that all the agency’s work had been ordered halted apart from a small number of active construction projects, including a wastewater treatment plant in Mongolia, electrical power grids in Senegal and Nepal, and schools in Ivory Coast.

“This is very much a business- and infrastructure-focused way of doing development. It's very much in America's interest,” said the employee, who requested anonymity.

In its report, the CNN stated that MCC has been viewed as the US response to China’s Belt and Road initiative, which also funds infrastructure in developing countries. The US has long opposed the Chinese initiative and dissuaded countries from taking part.

When MCC was dragged into the controversy in Nepal, Beijing and Washington also taunted each other with public statements. When Washington termed MCC a “ gift” to Nepal ahead of the compact’s parliamentary ratification in February 2022, Beijing reacted in a strongly-worded statement.

“How could a ‘gift’ be sent by an ultimatum? How could people accept such a ‘gift’? Is it a ‘gift or a Pandora's box?’ Is it afraid that just as the old Nepali saying goes, it looks delicious, but it's actually a meat tough to chew,” Chinese foreign ministry spokesperson Hua Chunying told reporters in Beijing on February 24.

Charles Kenny, a senior fellow at the Center for Global Development, told CNN that “the Millennium Challenge Corporation is pretty much the only bit of the US government funding public sector infrastructure in developing countries — the kind of thing China’s Belt and Road initiative has done, only with grants rather than loans.”

“However, with recent major cuts to foreign aid, such as the MCC and USAID, critics say that the US is ceding influence to countries like China,” CNN reported.

The MCC, which was created by the US Congress with support from both Republicans and Democrats in 2004, has an annual budget of about $900 million. It partners with developing countries on projects like improving electricity supply for businesses and building good roads for farmers to get their goods to market, according to its website.