Political instability has long been a fixture in Nepal, with its economy faltering amid ongoing uncertainty. Recently, however, US President Donald Trump’s actions have raised fresh concerns, particularly regarding Nepal’s development efforts.
Just last week, Trump canceled $39 million in USAID funding—$20 million for fiscal federalism and $19 million for biodiversity conservation. In addition, the US suspended a $550 million compact grant, which Nepal had been promoting as a model for foreign aid. The grant was meant to fund vital infrastructure projects, including power stations and road upgrades. Despite spending around $190 million on land acquisition for the projects, it remains uncertain whether the grant will be reinstated.
The cancellation has sparked a backlash, with critics questioning the transparency of US assistance in Nepal. There are growing calls for a high-level investigation into alleged corruption linked to foreign aid, including the drafting of Nepal’s constitution and development initiatives. Former King Gyanendra Shah, in a recent Democracy Day address, urged Nepal’s political leaders to unite and save the country. His appeal, however, has divided public opinion, with some calling for his arrest while others rally behind his message of national reconciliation.
Nepal had also signed agreements with India and Bangladesh to supply 400 MW and 40 MW of power, respectively. These deals, alongside the 2017 agreement with the Millennium Challenge Corporation (MCC), were seen as critical to the country’s energy future. However, with the US suspending its compact, Nepal’s hydroelectric sector faces significant challenges. This setback could also jeopardize Nepal’s power agreements with India and Bangladesh.
Adding to the turmoil, the Financial Action Task Force (FATF) recently placed Nepal on its “Grey List” for failing to pass anti-money laundering laws, which could further isolate the country economically. Transparency International’s latest report also revealed a worsening corruption index, further dampening investor confidence.
Amidst this uncertainty, protests have erupted, with many demanding investigations into alleged corruption among top leaders. The government’s attempt to bring investigative bodies under political control has sparked more backlash, making it a challenging time for the ruling parties.
The revelations about US aid, paired with the former king’s call for national unity, are proving to be a potent mix. As Nepal navigates this period of political unrest, it’s clear that the country’s internal struggles, coupled with external pressures, could shape its future in significant ways.
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