The United States’ decision to halt all new foreign aid, except for military assistance to Israel and Egypt, has raised concerns about the future of US-funded projects in Nepal.

As Nepal’s largest bilateral donor, the US has supported the country through USAID and the Millennium Challenge Corporation (MCC), providing all aid in the form of grants.

Government officials of Nepal are uncertain whether the US decision will affect already approved aid or only future projects.

"It is unlikely that aid for approved projects will stop, but new projects might be impacted," said an official from the Ministry of Finance's Department of International Economic Cooperation.

Under a five-year agreement signed in 2022, USAID is expected to provide Nepal with $659 million (NPR 91.1 billion) in aid through 2027. USAID prioritizes areas such as education, health, governance, economic development, and disaster management.

Similarly, the MCC has been upgrading 315 kilometers of transmission lines and sections of the East-West Highway. Initially set at $500 million, the MCC recently added $50 million to its assistance.

In Nepal’s health sector, a significant portion of US aid, both through and outside the government budget, is used for system strengthening, training health workers, developing digital health services, and sanitation improvements. In December 2023, USAID and Nepal’s Ministry of Health launched the International Health Security Program with a $6.75 million grant to address infectious diseases.

Dr Prakash Budhathoki, spokesperson for the Ministry of Health, noted that US support has been instrumental in training health workers, purchasing equipment, promoting safe motherhood, and raising public awareness through women health volunteers and mother groups in rural areas.

The US decision to halt new foreign aid follows an instruction from Secretary of State Marco Rubio to stop aid globally, except for emergency food supplies to famine-stricken areas. According to the Time magazine, the US provided $60 billion in foreign aid in 2023, which represents about 1% of its total budget.

As Nepal prepares its budget for Fiscal Year 2025/26, officials acknowledge the potential impact. "If new aid does not materialize, we will need to adjust the budget accordingly," said Mahesh Bhattarai, spokesperson for the Ministry of Finance.