Nepal is waiting for the resumption of financial assistance under the Millennium Challenge Corporation (MCC) after billionaire Elon Musk’s Department of Government Efficiency (DOGE) decided to shut down MCC’s global operations in April last week. The MCC had allocated US$500 million for two infrastructure-related projects in Nepal.

After the DOGE decision, the fate of two infrastructure projects in Nepal has become uncertain, and there is ambiguity in the government about how to proceed if the MCC discontinues its support.

“We have approached and made requests to four different US agencies and offices including the State Department and MCC headquarters for the continuation of the MCC projects in Nepal,” Lokdarsan Regmi, Nepali ambassador to the United States, told the Post over the phone from Washington. “We are confident that the US administration will give continuity to MCC funding.”

Nepal and the MCC signed an agreement in September 2017 to execute energy and road upgrade projects, where the US would pump in $500 million in aid, while Nepal would inject $150 million. Nepal’s contribution was later increased to $197 million.

The total investment in the 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 put in another $50 million into the project to fill the funding gap.

“We have made our position on the MCC clear to US officials,” Regmi said. “We wait for a positive decision from their side.”

The decision to shut down the MCC was taken some three weeks back but the MCC headquarters has not given any written confirmation—whether the MCC projects have been cancelled or will continue.

In Kathmandu, it was reported that the MCC board would convene last week in Washington to make an official decision on whether the projects will continue, and in which country they will continue, according to an official at Millennium Challenge Account Nepal (MCA-Nepal). “But the meeting could not happen as some of MCC officials needed to travel to Geneva for tariff talks with Chinese officials,” the official said.

“Now that the Geneva meeting is over, we hope that the upcoming meeting, which probably will take place this Wednesday or next week, will take a final call, and the confusion over MCC projects in Nepal will be lifted.”

Besides Nepal, the MCC is working in dozens of other countries and investing in infrastructure related projects.

“We expect a concrete decision from the MCC headquarters by May 21,” the Nepali official at the MCA-Nepal said. “Although it was reported that the MCC’s global operation was shut down, we have not felt any impact here.”

Ahead of the MCC shutdown, 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.

With the three-month period now over, DOGE on April 25 decided to shut down US aid programmes that span over 40 countries, even though there was no official announcement to this effect.

But the back-to-back decisions of the Trump administration to eliminate the United States Agency for Development (USAID) and the MCC have raised questions about the American commitment to providing economic and developmental assistance to developing nations like Nepal.

As Nepal prepares the next year’s fiscal budget, there is uncertainty about how to fill the funding gap if MCC withdraws its support. Either Nepal has to continue both projects using its own resources or discontinue them due to lack of funds.

The MCA-Nepal, an oversight body, was created in order to execute the two MCC projects in Nepal.

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

“Despite news of the MCC shutting down its global operations, there is no such effect in our office in Kathmandu as we are getting salary on a regular basis, procurement process is on and payment has not stopped,” said the official.

If the MCC completely withdraws its support, the Ministry of Energy and Nepal Electricity have communicated to the MCA-Nepal that the NEA will continue to build the cross-border transmission line and expand the domestic transmission line—both projects currently being implemented by MCA-Nepal, another official at MCA-Nepal told the Post.

“There has been no official communication about what has appeared in the media,” Pushkar Mathema, information official at MCA Nepal said. “We are also waiting for an official confirmation by next week, following the MCC board’s meeting.”

As nothing has been officially communicated in writing, officials are uncertain about how to raise the matter with US counterparts. “Based on media reports, we have communicated our position and concerns to US officials, as well as to those at MCC headquarters and other officials in Washington,” a Nepali diplomat based in Washington, told the Post.

“We have stated our position, and my hunch is that the MCC projects in Nepal will continue,” said ambassador Regmi.

Following the shutdown of the USAID, another big financial and economic window of the US government, according to ambassador Regmi, he has requested the US officials to resume support to Nepal in the health and education sectors where USAID has been active for years.

“I have also requested US officials that they should open these two windows [health and education] in Nepal,” he said. “If they cannot give continuity to all the previously USAID-backed sectors in Nepal, I have requested them to at least keep supporting these two sectors on humanitarian grounds.”

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. Nepal will face a double whammy if the Trump administration wraps up the MCC after the USAID.

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 being misused.

The MCC, which was created by the US Congress with the support of 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.