The temporary suspension of US funding has cast uncertainty over the successful implementation of projects under the Millennium Challenge Corporation (MCC) Compact in Nepal. The latest communication from the US government confirming that the funding pause applies to MCC-funded projects has raised concerns not only about the delays but also about the projects' successful completion.

Initially, Nepali officials were confident that MCC-funded projects would remain unaffected, even as USAID-funded initiatives were immediately impacted following President Donald J. Trump’s executive order upon assuming office to freeze all USAID funding for 90 days pending review. A sense of uncertainty exists now about whether the MCC funding will continue after the 90-day pause, during which the US government will "reevaluate and realign" its foreign aid as a part of broader review.

On February 14, the US aid agency informed Nepali officials via email that all payments related to activities under the MCC Nepal Compact had been halted in compliance with the 90-day funding freeze imposed by President Trump’s January 20, 2025, executive order. “The latest communication from the U.S. side indicates that MCC funding is also likely to be affected,” said an official at the Ministry of Finance.

The $550 million MCC-Nepal Compact includes the construction of approximately 315 km of 400kV transmission lines and road infrastructure upgrades. The Government of Nepal has committed an additional $197 million to implement these projects.

Work on the compact began in August 2023 with a five-year deadline. However, there were already concerns about whether the projects could be completed on time amid delays in awarding contracts due to significant cost estimation variations.

Government officials are now assessing the potential impact of the suspension and exploring measures to mitigate disruptions if the Trump administration ultimately withdraws support.

While concerns persist in Nepal about the possibility of a complete funding withdrawal, the U.S. Embassy in Kathmandu has clarified that the suspension is temporary. Responding to a query from Republica, an embassy spokesperson said the decision follows guidance from the Office of Management and Budget (OMB) and is part of a broader review process.

“The Millennium Challenge Corporation (MCC) is complying with President Trump’s executive orders and Office of Management and Budget (OMB) guidance. As part of this compliance, MCC-related activities, including disbursements, have been temporarily paused in accordance with the Executive Order issued by President Trump on January 20, 2025, and are under review,” the spokesperson said.

Despite the temporary suspension, the US government reaffirmed its commitment to its partnership with Nepal. “The U.S. government remains committed to its partnership with Nepal and will continue to engage with the Government of Nepal regarding the next steps once the review process is complete,” the embassy spokesperson further stated.

The MCC Nepal Compact, a grant aimed at improving Nepal’s electricity transmission and road networks, has faced intense political and public scrutiny since its ratification by parliament in 2022. The latest development comes at a time when Nepal’s geopolitical positioning remains under close scrutiny, particularly concerning its engagements with major powers.