The Trump administration’s decision to freeze all new foreign aid , except for military assistance to Israel and Egypt, has led to the suspension of all USAID-funded projects in Nepal for three months.
As Nepal’s largest bilateral donor, the United States has provided significant support through USAID and the Millennium Challenge Corporation (MCC), offering grants for sectors like education, health, governance, economic development, and disaster management. Under a five-year agreement signed in 2022, USAID is slated to provide Nepal with $659 million in aid through 2027.
However, USAID has informed the governmnet that four projects funded under the Development Objective Agreement (DOAG), signed on May 5, 2022, which fall under the category of on-budget and on-treasury assistance disbursed through the consolidated fund, have been suspended for 90 days.
Issuing a statement on Monday, January 26, Mahesh Bhattarai, Spokesperson at the Ministry of Finance, informed that the suspended projects include the USAID Health Direct Financing Project, USAID Agricultural Direct Financing Project, USAID Education Direct Financing Project, and USAID Inclusive Policy Direct Financing Project. “During this 90-day period, all concerned agencies have been instructed not to create any liabilities under these suspended projects from USAID resources,” the statement reads.
“We have been instructed in writing to halt all programs, procurements, training, seminars, and travel related to USAID-funded projects for three months,” Ram Prasad Subedi, President of the NGO Federation of Nepal, told New Business Age. Subedi also noted that the letter from the USAID-funded INGOs did not clarify the status of project staff or operational expenses.
Shortly after assuming office on January 20, President Trump ordered a 90-day pause in foreign aid to review its alignment with U.S. foreign policy priorities. On January 24, the U.S. State Department issued a “stop-work” order on foreign assistance worldwide, with exceptions for emergency food programs but not for health services, reported Reuters . "A memo sent on Saturday to more than 10,000 staff at USAID offered further guidance to Friday’s “stop-work” directive that effectively put a sweeping freeze on U.S. foreign aid worldwide," it said.
The United States, the largest single donor of global aid, disbursed $72 billion in assistance in fiscal year 2023, accounting for 42% of all humanitarian aid tracked by the United Nations in 2024, says the Reuters report.
The sweeping freeze has sparked concerns globally, including in Nepal.
Economist Keshav Acharya told New Business Age that the suspension would have a direct impact on Nepal’s health and education sectors, particularly for HIV/AIDS and family planning programs. The U.S. withdrawal from the World Health Organization (WHO) under Trump’s executive order adds further uncertainty.
Acharya emphasized the need for Nepal to enhance economic diplomacy and prepare for potential similar actions by other donors.
Observers are also concerned about the fate of MCC-funded projects, including upgrades to 315 kilometers of transmission lines and sections of the East-West Highway. Initially set at $500 million, MCC recently added $50 million to its assistance.
As Nepal prepares its budget for Fiscal Year 2025/26, officials are bracing for the potential impact. “If new aid does not materialize, we will need to adjust the budget accordingly," Bhattarai from Finance Ministry had earlier told New Business Age.
The suspension comes at a challenging time, as Nepal faces declining funding through INGOs amid preparations to graduate from Least Developed Country (LDC) status in 2026. Subedi noted that foreign grants will decline further, impacting Nepal’s development aspirations.
“With ongoing geopolitical events like the Russia-Ukraine war, global development funding is shrinking, and our economy is yet to recover,” Subedi added.
This story has been updated to include the statement from the Ministry of Finance.
