As the United States moves toward discontinuing the Millennium Challenge Corporation (MCC) grant program, Nepal is preparing to continue the associated infrastructure projects using domestic resources. Internal discussions at the Ministry of Finance have concluded that halting the projects midway would not be in the country’s interest, given the significant investments already made and the strategic importance of the initiatives.
Although the US has yet to officially notify any partner countries, including Nepal, about the closure of MCC programs, international media reports indicate that MCC staff have been informed that the program may be terminated at any time. The uncertainty is attributed to changes in US foreign aid policy following the inauguration of President Donald Trump in January 2017.
In response, Nepal’s Ministry of Finance has started planning for a transition. The finance minister is expected to allocate funds in the upcoming budget to sustain ongoing works. The government has emphasized the need to continue key infrastructure development projects, especially in electricity transmission and road upgrades, even without external support.
Continuing the MCC projects without US backing presents serious fiscal challenges. The total estimated cost is Rs 92 billion. With Nepal currently facing a budget deficit exceeding Rs 125 billion, and revenue collection and foreign aid inflows falling short of targets—only 28 percent of the expected foreign grant income has been realized so far—funding such large-scale projects from the national budget will be difficult.
Nepal’s progress toward middle-income status is expected to reduce the volume of foreign aid in the future. Additionally, servicing foreign loans has become more expensive due to the strengthening of the US dollar, which has raised the cost of principal and interest repayments.
Given these circumstances, the Finance Ministry is reassessing development priorities. Multi-year infrastructure projects are expected to face budget cuts, and several ongoing projects may be scaled back or delayed.
Despite these financial pressures, the MCC projects have already seen early implementation. Work began in September 2023 following parliamentary ratification in 2021. In the road sector, preliminary construction is underway on the 40-kilometer Dhan Khola–Lamahi section of the East-West Highway, with plans to extend work to the 37-kilometer Lamahi–Shiva Khola segment.
In the energy sector, tenders have been issued for about 297 kilometers of power transmission lines, along with an 18-kilometer cross-border line already under agreement. In total, the plan includes 315 kilometers of transmission lines, 856 transmission towers, and three 400 kV substations in Ratmate (Nuwakot), New Damauli (Tanahun), and New Butwal (Rupandehi).
Nepal had initially agreed to contribute $197 million to complement the $550 million US grant under the MCC compact. With the potential withdrawal of US funding, Nepal will now need to bear the full cost, including administrative expenses. These have faced criticism for high operational costs and use of luxury facilities.
Despite the financial burden, government officials argue that continuing the projects is essential for national development and long-term economic independence. The Ministry of Finance is expected to include budgetary allocations for the projects in the upcoming fiscal year.
