Despite mounting reports that the United States may shut down the Millennium Challenge Corporation (MCC), Nepal remains optimistic that it will continue to receive MCC funding in the upcoming fiscal year.

The Government of Nepal has projected Rs 5.68 billion in MCC assistance for fiscal year 2025/26. However, it has yet to disclose how much of the Rs 9.9 billion earmarked for the current fiscal year has actually been disbursed.

Under the MCC Compact—a high-level US foreign aid initiative—the US pledged $500 million in grants to Nepal, to be matched by the government’s own contribution. The funds are intended to finance the construction of electricity transmission lines and upgrades to major roads.

In April, several international media outlets reported that US President Donald Trump—who returned to office earlier this year—and his cost-cutting adviser Elon Musk had decided to shut down the MCC. The move was reportedly part of a broader effort to “curb the misuse of American taxpayers’ money.”

These reports cited leaked internal communications, including staff letters and meeting recordings, suggesting that the US Department of Government Efficiency (DOGE) had ordered the phase-out of MCC operations. Staff were allegedly informed on April 23 that all programs would be terminated and staffing drastically reduced.

Established by the US Congress in 2004, the MCC manages an annual budget of roughly $900 million and works with developing nations to build infrastructure projects that promote economic growth.

The future of the program was cast into doubt after President Trump ordered a sweeping 90-day review of all foreign aid programs, pausing both USAID and MCC operations globally, as soon as he returned to the White House.

However, Reuters, citing an MCC official, reported that a few ongoing projects—including electricity grid development in Nepal and Senegal, wastewater management in Mongolia, and school construction in Ivory Coast—would be likely allowed to continue.

Despite these developments, no official announcement has been made by the US government regarding the termination of MCC. Nepal’s Ministry of Finance and the Millennium Challenge Account Nepal (MCA-Nepal), the local agency overseeing project implementation, say they have not received any formal notification.

At a press briefing held after the national budget announcement, Dhani Ram Sharma, Joint Secretary and Head of the International Economic Cooperation Coordination Division at the Ministry of Finance, confirmed that the government had received no official communication about the MCC’s closure. As such, Nepal is operating on the assumption that MCC funding will continue, he said.

Nepal signed the MCC Compact in September 2017, under which the US committed $500 million and Nepal initially pledged $130 million—later revised to $197 million. The total package of $697 million is earmarked for critical infrastructure, including the East-West Highway upgrades and the cross-border 400kV Butwal-Gorakhpur transmission line, a strategic project for enhancing Nepal-India electricity trade.

While construction on the Indian side of the transmission line is moving forward, officials say uncertainty over US funding has brought work on the Nepali side to a standstill.

The MCC Compact was ratified by Nepal’s Parliament on February 27, 2022, after extensive debate and political controversy. The ratification was accompanied by a 12-point interpretive declaration affirming Nepal’s sovereign rights under the agreement.

The MCC Compact includes a provision that allows either party to terminate the agreement with 30 days’ written notice. Should the US officially pull out, Nepal would be forced to fund the unfinished transmission line and road projects from its own budget.