Nepal’s US-backed infra plan in jeopardy as Trump freezes foreign aid

Nepal’s ambitious infrastructure expansion, backed by a $500 million grant from the United States, has been cast into uncertainty following the Trump administration’s decision to suspend foreign aid.

The move, which comes as part of a broader freeze on international funding, has sparked concerns in Kathmandu, where leaders fear the setback could strengthen China’s influence in the region, according to a report by The Economic Times.

The funding was provided through the Millennium Challenge Corporation (MCC), a US government agency established in 2004 to promote economic development worldwide. Nepal ratified the deal in 2022 after overcoming significant domestic resistance and agreeing to contribute $200 million of its own resources. The grant was earmarked for critical infrastructure projects, including a 320-kilometre (nearly 200-mile) electricity transmission line to facilitate energy exports to India, as well as improvements to Nepal’s road network.

However, with Washington halting aid disbursement for at least 90 days, Nepal’s long-term plans are now in limbo. Some preliminary work, such as substation construction, had already commenced, but a prolonged funding freeze could lead to financial and contractual complications for the Himalayan nation.

While Beijing has not made any direct moves in response, the situation provides an opportunity for China to further extend its influence in Nepal. Critics of the MCC grant had long warned that accepting US assistance could compromise Nepal’s sovereignty, fuelling speculation that it might pave the way for future American military involvement. The Chinese government also voiced concerns, with Foreign Ministry spokesperson Hua Chunying questioning whether the agreement was a genuine gift or a ‘Pandora’s box’ that could bring unintended consequences.