KATHMANDU: The United States government has officially allowed the continuation of the Millennium Challenge Corporation (MCC) Compact in Nepal, ending months of uncertainty surrounding the future of the $697 million aid package aimed at upgrading roads and electricity transmission infrastructure.

Following a broader foreign aid review initiated after the Donald Trump administration’s cost-cutting push led by the Department of Government Efficiency (DOGE), the MCC was initially set for closure, alongside the USAID program.

In February 2025, the MCC had temporarily halted disbursements under a 90-day freeze order. By March, DOGE had ordered the shutdown of U.S. aid programs in over 40 countries.

However, after internal reviews, the U.S. government reversed course and recommended the resumption of the MCC Compact in Nepal.

The American Embassy in Kathmandu informed the Ministry of Finance via email and verbally notified the Ministry of Foreign Affairs.

The decision clears the path for the Millennium Challenge Account Nepal (MCA-Nepal) to continue two key projects: an upgrade of a section of the East-West Highway and the construction of cross-border and domestic transmission lines.

The MCC Compact—signed in 2017 and endorsed by Nepal’s Parliament in February 2022 with a 12-point interpretive declaration—committed $500 million in U.S. grant aid, while Nepal pledged $197 million.

The combined $697 million investment aims to boost Nepal’s energy connectivity and transport efficiency, with indirect strategic value in the Indo-Pacific region.

The Compact officially came into force in August 2023 with a five-year implementation deadline. Although temporarily disrupted, the U.S. decision now ensures uninterrupted execution of the remaining works, which include multimillion-dollar tenders already underway.

Geopolitically, the MCC has been viewed as a counterweight to China’s Belt and Road Initiative, with U.S. officials highlighting the MCC’s role in creating trade opportunities and reducing Chinese influence.