By Nirmal P. Acharya

The United States Agency for International Development, with tens of thousands of employees, was dismantled by the Trump administration. The Trump administration has given USAID an entirely negative review.

I can't help but wonder what USAID has to do with MCC, so I looked it up and sharing it with you here.

The United States Agency for International Development (USAID) and the Millennium Challenge Corporation (MCC) are both part of the US foreign aid system, but they are relatively independent in their institutional setup, funding mechanism, and program execution. If USAID is disbanded, its direct impact on the MCC program in Nepal may be limited, but the indirect impact needs to be assessed in conjunction with US policy shifts and domestic political dynamics in Nepal. Here are the possible directions of impact:

1. MCC project independence

Institutional independence: The MCC is directly authorized by the US Congress and is funded independently of the State Department and USAID, theoretically unaffected by the dissolution of USAID. Its project approval and funding allocation need to go through the parliamentary process, and unless the new government explicitly terminates the MCC, the Nepal project may continue.

Exceptions: If the new US administration significantly cuts its foreign aid budget or adjusts the MCC's list of priority countries (such as moving to more geographically competitive regions), the Nepal program could face funding delays or downsizing.

2. Potential Impact of the US Policy shift

Reprioritization of aid: If the dissolution of USAID reflects a shrinking of the overall US foreign aid strategy, MCC may face simultaneous policy pressures. For example, if the new administration emphasizes "America first," it may require MCC projects to more directly serve US strategic interests (such as infrastructure to counter the Belt and Road Initiative), resulting in more political conditions attached to the implementation of Nepal projects.

Conditions for democratic governance: MCC programs usually require recipient countries to meet standards in areas such as democracy and human rights. If the US policy shifts toward diluting values diplomacy, Nepal could face looser oversight, but it could also weaken enforcement of the MCC provisions as the United States' international credibility declines.

3. Nepal's domestic political reaction

Further fermentation of controversial clauses: Nepal's MCC agreement has triggered domestic protests due to disputes such as "sovereignty transfer" and "US military intervention". If the US policy uncertainty increases, the Nepalese opposition could take the opportunity to demand renegotiation of the terms or even suspension of the project.

The government's wavering stance: If the ruling party of Nepal is concerned about the sustainability of the US commitment, it may reduce its cooperation with the MCC (such as land acquisition and the implementation of matching funds), resulting in the project schedule lagging behind.

Geopolitical alternatives; the influence of China and India: If US aid shrinks, Nepal may accelerate its move towards China and India. Infrastructure investments under China's "One Belt, One Road" or India's "neighbors first" policy may partially replace MCC projects (e.g. power, road constructions), reducing MCC's economic influence in Nepal.

Regional cooperation mechanisms: Nepal may become more actively involved in multilateral projects of the South Asian Association for Regional Cooperation (SAARC) or the Bay of Bengal Initiative (BIMSTEC), reducing its dependence on a single donor.

5. Specific project risks

Power transmission and road projects: MCC Nepal plans to focus on energy and transport (e.g. 300km transmission lines, road upgrades). If funding is interrupted, Nepal may rely on alternative financing from the Asian Development Bank (ADB) or the World Bank to upgrade its power grid, but the cost and time could increase.

Governance reform package: The MCC requires Nepal to improve corruption and administrative efficiency, and if projects stall, related reform momentum may be weakened, affecting long-term development capacity.

Conclusion: Multiple plays in uncertainty

The dissolution of USAID itself will not directly determine the fate of the MCC, but if it symbolizes the overall restructuring of the US foreign aid system, the Nepal program will face three challenges: financial stability, domestic political acceptance, and competition from geopolitical alternatives. The ultimate impact will depend on the substance of the US New Deal, the negotiating power of the Nepali government, and the extent to which regional powers (China and India) are involved. In the short term, the project may enter a "wait and see period", and in the long term, there is a risk of being repositioned or diluted.