The government is considering alternative funding sources following the suspension of US assistance through USAID and the Millennium Challenge Corporation (MCC), a senior official has confirmed.
US President Donald Trump, through an executive order dated January 20, halted spending from both aid agencies for 90 days. It remains uncertain whether the aid will resume after this period.
In response, the Ministry of Finance has stated that if the suspension extends further, the government will need to explore other funding options to keep development projects on track.
An official from the International Financial Assistance Coordination Division of the ministry said that in the event of a prolonged suspension, the government plans to approach donor agencies such as the World Bank, the Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB) for concessional loans.
"We will submit proposals to all donor agencies for concessional loans," the official said. "Additionally, discussions will be held on advancing stalled projects under China's Belt and Road Initiative (BRI)." Finance ministry officials have assured that ongoing US-funded projects will not be left in limbo.
According to Shyam Prasad Bhandari, joint secretary and spokesperson for the Ministry of Finance, the ministry has received a budget ceiling for the upcoming fiscal year. He noted that if the aid cut continues, alternative solutions will be required.
"The ministry is currently in a wait-and-watch position," Bhandari told New Business Age. "If aid remains suspended for an extended period, we will be forced to seek various alternatives." He added that preparations are underway to allocate the budget ceiling to different ministries. The budget is being prepared with the assumption that American aid will not be halted.
Impact on MCC and USAID Projects
The MCC, a key US-funded initiative in Nepal, includes a $550 million grant from the US government and a $197 million investment from the Nepalese government.
Under this agreement, projects in the road and energy sectors are being implemented. Signed on September 14, 2017, the MCC agreement includes the construction of a 400 kV transmission line from Ratmate in Nuwakot to Butwal and Gorakhpur, along with road upgrades.
Contracts have already been signed for 18 kilometers of transmission lines and three substations from the New Butwal substation to the Nepal-India border. The bid submission deadline for the remaining 297 kilometers of transmission lines recently expired. MCA Nepal, the agency responsible for implementation of projects under the MCC, stated that land acquisition work is progressing across various districts.
In 2022, USAID announced a five-year, $659 million aid package for Nepal. However, the Ministry of Finance recently confirmed receiving an email notification stating that all MCC-related activities, including payments, have been suspended for 90 days in compliance with Trump’s executive order.
Economist Keshav Acharya believes there is a strong possibility that MCC grants will not be permanently cut. He explained that while USAID grants come directly from the US government, the MCC is managed by a body approved by the US Congress, making its suspension less likely.
However, the Trump administration’s decision to halt all aid through the US Department of State and USAID has already affected Nepal, disrupting four major USAID programs focused on health, agriculture, education, and inclusive policies. These projects, implemented in coordination with federal, provincial, and local agencies, now face uncertainty.
Experts caution that the government should not adopt a passive stance, as the resumption of assistance remains unpredictable.
Former Nepal Rastra Bank Executive Director Nara Bahadur Thapa warned that prolonged aid suspension could severely impact Nepal’s development projects.
"The government is currently in a wait-and-watch mode," he said. "If the aid is not reinstated after three months, projects worth billions will face serious setbacks."
Thapa emphasized that Nepal should diversify its funding sources instead of relying solely on US aid.
"Nepal has not shown much interest in taking loan assistance from China," he noted. "However, China has ample resources and is actively investing in Africa, Europe, Bangladesh, and the Maldives. We should also consider securing Chinese aid at concessional interest rates."
He cautioned that without alternative funding, large-scale development projects could face delays of five to six decades.
