Since the 1950s, America’s development assistance to Nepal has steadily increased. However, after Donald Trump was re-inaugurated as the 47th President of the United States, this assistance was significantly cut, straining small countries’ health, education, and humanitarian sectors.
Small nations are increasingly viewing superpowers as unreliable partners, as assistance and projects have often been canceled midway. Experts say at the very least small countries should have been given time to find alternative sources of funding before support in critical sectors like health and education was withdrawn.
While the exact figures remain unclear, dozens of non-governmental organizations (NGOs) have canceled projects previously supported by USAID. Referring to America’s Millennium Challenge Corporation (MCC) during an internal party meeting, Prime Minister KP Sharma Oli noted that agreements signed after years of deliberations were abruptly terminated.
With media reports suggesting that the Trump administration might shut down the MCC, there is growing concern in Nepal that two major projects—a cross-border transmission line and a road upgrade—could be affected. Prime Minister Oli says that Nepal should not overly rely on foreign aid. In a direct reference to the MCC, he noted that even though the parliaments of both countries had ratified the compact, the US unilaterally decided to terminate it.
Foreign policy experts say the new US administration’s policies pose both challenges and opportunities for countries like Nepal, which have relied heavily on foreign aid for decades, even in critical sectors like health. In the short term, countries will struggle to secure funds, impacting infrastructure development. But in the long run, experts say it presents an opportunity to reduce dependency on foreign assistance.
Nilanthi Samaranayake, an independent analyst based in Washington, DC, says that smaller countries are clearly affected by the shift in US international engagement policy and that they should reassess their economic and security dependencies on the US.
Nepal, she suggests, should seek a broader range of international partners beyond just the US, India, and China. While Washington’s policy changes bring challenges, she is of the view that they also offer Nepal an opportunity to enhance its diplomatic outreach and diversify its economic and security partnerships.
Development cooperation between Nepal and the US dates back to 1951, when the two countries signed their first bilateral aid agreement under the US’s Point Four Program. Early US assistance prioritized building roads, establishing telephone exchanges, eliminating malaria from the Tarai region and promoting agricultural development. By 1959, the US had helped Kathmandu install its first automatic telephone exchange, providing 1,000 lines, and supported the construction of the 87-kilometer Bharatpur-Hetauda road under the Rapti Development Program. Work also began on the Hetauda-Kathmandu ropeway the same year.
In the 1960s, during King Mahendra’s consolidation of the Panchayat system, US aid surged dramatically. President Dwight Eisenhower’s unexpected $15m pledge to King Mahendra in April 1960 marked a turning point in US involvement in Nepal’s development. USAID expanded its programs in agriculture, health, education and industrial development. After King Mahendra dissolved parliament and banned political parties in 1960, US aid was redirected to support the Panchayat system. The US supported construction of administrative structures across Nepal, viewing the Panchayat system as a potential vehicle for mobilizing human resources and fostering economic, social and democratic political development.
Chandra Dev Bhatta, a Kathmandu-based geopolitical expert, says that as traditional Western donors reassess their commitments, the impact on countries like Nepal’s development and service delivery mechanisms could be significant.
“With the withdrawal of USAID and now the MCC, some of Nepal’s vital infrastructure projects may face serious challenges, if not come to a complete standstill,” Bhatta says. “International aid architecture is not only evolving but has also become increasingly politicized. While reduced aid and grants are a concern, Nepal must press forward with infrastructure development and keep the service delivery systems intact.”
In the short term, Bhatta suggests that Nepal should urge donor countries to honor their previous commitments despite new geopolitical realities. In the long term, he says, the importance of recognizing that aid is often driven by the donor’s own interests. “This is the stark reality of international cooperation,” he says. “Global political and economic dynamics demand us to have self-reliant models of economic development, and Nepali certainly will have to work in that direction.”
It is now almost certain that US assistance to Nepal will continue to decline. Support is likely to persist only in areas aligned with the Republican Party’s priorities. So far, there have been no concrete discussions between the two countries regarding this new reality.
Satoru Nagao, a Non-Resident Fellow at the Hudson Institute, says that under the current rules of global free trade, China has been catching up with the US. And for small countries, he adds global trade brings both opportunities and challenges. “While factories may relocate elsewhere, small countries can still attract investment if they maintain competitive production costs.”
Nagao points out that if tariffs dominate the new global trade rules, small countries will need to adapt. Although this shift may allow local industries to survive, there will likely be fewer opportunities for foreign investment. He says since the primary target of current US policy is China, countries that depend heavily on China could suffer under these shifts. He warns that if Nepal increasingly relies on China, it risks becoming “a passenger on a sinking ship.”
