Trump Administration Reinstates MCC Nepal Compact After Suspension
After months of uncertainty, the administration of former U.S. President Donald Trump has decided to reinstate the Millennium Challenge Corporation (MCC) Nepal Compact, bringing relief to Nepali officials and ensuring the continuation of major infrastructure projects. The decision follows a review by the U.S. State Department, reversing earlier moves by the U.S. Department of Government Efficiency (DOGE)—a cost-cutting body formerly led by billionaire Elon Musk—which had announced the shutdown of both the MCC and USAID earlier this year.
The MCC Compact, a $697 million aid agreement between Nepal and the United States, supports two key infrastructure projects in Nepal: the development of a cross-border electricity transmission line and the upgrade of a key section of the East-West Highway. Initially signed in 2017, the agreement includes $500 million in U.S. grants and $197 million in counterpart funding from Nepal. An additional $50 million had been proposed by the MCC board to bridge a funding gap, potentially raising the total project cost to $749 million.
The continuation of the compact follows weeks of concern in Kathmandu, where officials were preparing contingency plans in the event of a complete U.S. withdrawal. A senior official at the Ministry of Finance confirmed that the government had been informed of the resumption through diplomatic channels and noted that the news was met with relief. “Although we had received verbal reassurances, we were also exploring alternative sources of funding,” the official said.
The MCC Compact has been a subject of political controversy in Nepal, particularly since 2020, when several leftist and nationalist groups argued that the agreement was tied to the U.S. Indo-Pacific Strategy. Concerns about sovereignty and geopolitical alignment led to prolonged debate, mass protests, and delays in parliamentary endorsement. In February 2022, the House of Representatives ratified the compact, but only after appending a 12-point interpretive declaration meant to protect Nepal’s national interests.
The compact officially came into force in August 2023, setting a five-year timeline for the completion of both projects. However, in early 2025, progress was stalled when the Trump administration imposed a 90-day freeze on MCC-related disbursements through an executive order signed on January 20. This was followed by DOGE’s broader decision to wind down U.S. foreign aid operations in more than 40 countries, casting further doubt on the future of the Nepal Compact.
Beyond its development goals, the MCC has also been viewed as part of a broader geopolitical contest. While Nepal is a member of China’s Belt and Road Initiative (BRI), the MCC has been described by U.S. officials as a strategic tool to advance American influence and economic partnerships. In a recent proposal to the U.S. Congress, MCC headquarters emphasized that its investments were not only about development, but also about countering the global expansion of the BRI and creating opportunities for American businesses abroad.
With the U.S. government now reaffirming its commitment, preparations are underway to fully resume the compact’s implementation. Major tenders for the electricity transmission line are already in progress, and the Millennium Challenge Account–Nepal (MCA-Nepal), the implementing agency, is expected to return to full operations soon. The decision marks a significant turn in Nepal-U.S. relations and ensures that the critical infrastructure projects can proceed without further disruption.
