Whichever way the Millennium Challenge Corporation (MCC) is finally settled in Nepal, whether Parliament ratifies, rejects, or amends it, the dust storm from its debate will take a long time to die down.
The United States offered Nepal $500 million in grants for the construction of transmission lines and strategic roads through the MCC. It was meant to be a transformative deal: a grant large enough to unlock important development chokepoints in Nepal. Instead, the MCC agreement has been mired in a debilitating national debate, even forcing senior MCC officials to visit Nepal last week.
On September 8, a day before Fatema Z. Sumar, vice president at MCC, was due to arrive in Kathmandu for consultations on the agreement, Prime Minister Deuba told a meeting of his parliamentary party that there was “no need to politicize the matter.”
Just before Sumar left Kathmandu on September 12, she told the press that “MCC was being politicized,” and that “economic assistance should never be made a political weapon.”
The debate around the MCC is, no doubt, wrapped in politics. But if unpacked, that political debate offers important lessons that could help Nepal overcome its development challenges.
The forgotten project
The debate on MCC rapidly degenerated into a discussion of the terms of the agreement, and whether it represented a defence alliance or was part of the US’s Indo-Pacific Strategy. The merits and long-term impacts of the underlying project—cross border transmission lines with India—were ignored.
A precondition to the MCC grant was that Nepal sign an agreement with India for the Butwal-Gorakhpur cross-border transmission line. Last week, on September 10, Nepal Electricity Authority and Power Grid Corporation of India signed an agreement to jointly invest in the Indian side of the line (120 km of the 135 km line falls in India).
Cross border electricity trade cuts both ways. If Nepal can export electricity to India, then India could also export power to Nepal. In the long term, Nepal may be unable to compete in Indian power markets, thus shutting down the potential for large-scale hydropower development in Nepal and increasing Nepal’s dependence on Indian power imports.
MCC has argued otherwise. In an editorial in Republica on Oct 3, 2019, the US ambassador to Nepal, Randy Berry, was unequivocal. “The MCC project,” he wrote, “focuses on constructing lines that will bring Nepal’s power to the consumers who will pay Nepal good money for it. It is a simple fact of geography and economics that means India.”
In another 10 years, Ambassador Berry may not be here to see whether India has paid Nepal “good money” for its power. But Nepal’s intelligentsia will still be here. They may come to rue debating an agreement for a project whose impacts hadn’t been fully considered in the first place.
As painful and political as the debate may have been, the best thing MCC did was to require the agreement to be ratified by parliament. The question we should ask now is why other international grants and borrowing are not subject to the same oversight and approval from parliament.
Over the last five years, Nepal’s public debt has increased significantly, and is now projected to reach 47 percent by the end of the fiscal year. International borrowing accounts for a large share of that debt. Of course, Nepal needs to borrow for development and investment. It has space to borrow more.
But within this space for borrowing, many of Nepal’s donors are failing to consider whether their development grants or loans are in fact truly beneficial to Nepal. This is accelerating the government’s rush to borrow (or be gifted with a grant) and spend, without focusing adequately on prioritizing productive investments and quality implementation.
As Sumar said, “economic assistance should never be made a political weapon.” But the tragedy in Nepal is that easy availability of foreign financing is fuelling the government’s lethargy, patronage, corruption, and politicization of everything.
Fortunately, MCC requires the parliament’s intervention. Nepalis must trust their parliament to make the right decision, including on MCC and other development projects. After all, we elected them to make those decisions. But we must also urge Nepal’s donors to be attentive to the aspirations of Nepali citizens as we work to build our young democracy.
We cannot hold our politicians accountable, make our governments efficient and responsive if they are always flush with donor cash for projects that may not even be needed.