By Hyacinth Estrada
The Millennium Challenge Corporation’s (MCC) flagship building compact with Nepal has been given a boost following a targeted exemption made by the United States Secretary of State in February.
As a result, projects can continue as planned, even though the US has temporarily cut off all foreign aid.
Nepal Compact exempted from freeze
According to a statement from the US Embassy in Kathmandu, the Donald Trump Administration started a full review of its foreign aid, initiating a 90-day freeze in the process.
Although this stopped MCC-supported operations for a while, the Nepal Compact was subsequently and specifically left out.
That exemption enables the continuation of two major infrastructure projects valued at $500 million, with Nepal contributing an additional $197m.
It also allows for the “full implementation” of the Nepal Compact, the embassy said.
“MCC is working closely with the Ministry of Finance and MCA-Nepal [Millennium Challenge Account–Nepal] to ensure that the activities undertaken or initiated under the compact, including potential new obligations, are aligned with US and Government of Nepal priorities and ensure transparency, sound governance, effective delivery, and prudent risk management,” it added in a statement dated June 18.
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Cash disbursements continue during assessment
In early 2025, US President Trump issued a presidential order suspending MCC cash disbursements, including in Nepal, where worries were raised about project delays and co-ordination challenges.
Despite those interruptions, procurement activities continued, bidding processes remained underway, and internal project structures were maintained through MCA-N’s operations.
Various projects are now moving towards full implementation.
The US Embassy highlighted Washington’s ongoing support for Nepal’s economic resilience by highlighting its active involvement with all stakeholders to reach a “constructive outcome” in the overall assessment process.
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Uncertainty over US aid remains
Critical infrastructure, such as the 315km, 400 kV transmission line that enables power commerce with India and requires road restoration, served as the foundation for the compact’s construction.
These investments support Nepal’s larger strategic objectives of regional integration and energy security.
However, analysts warn that there are still risks associated with persisting uncertainties in US policy.
Future disbursement schedules, implementation effectiveness, and Nepal’s ability to fulfil short deadlines will all be influenced by the conclusions and consequences of the final US foreign aid review.
As Nepal navigates this critical phase, both governments are dedicated to keeping infrastructure development on track and making sure that the momentum created by this historic compact is maintained.
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