Partnership Tested: Shuttering MCC Would Send the Wrong Signal to Nepal and Hand a Win to China

It was disheartening to learn last week that DOGE was moving to shut down the Millennium Challenge Corporation (MCC). The small, growth-focused agency has often been heralded as a model for effective aid partnerships. While MCC’s footprint is quite modest relative to the broader US foreign aid portfolio, the amount of money committed by MCC was significant for certain partners, as my colleague Charles Kenny highlighted. And if the administration follows through on closing MCC, the reputational damage to the United States is sure to reverberate. I’ve found myself struggling to make sense of this move in light of a particular consequence of this effort to shutter the agency—handing the People’s Republic of China a win in Nepal.

About MCC’s compact with the Government of Nepal

Initially signed in 2017 under the first Trump administration, the Nepal compact focused on increasing access to electricity and improving road maintenance. MCC agreed to provide $550 million in grant resources over five years. For its part, the Government of Nepal committed to its own substantial investment of $197 million. While MCC compacts can take a year or more to move from signing to entry into force, the one with Nepal took nearly six years since it required ratification by Nepal’s parliament.

Political dynamics in the country meant that ratification didn’t come easily. Officials in Nepal sought to guard the country’s independence fiercely. The US Ambassador to Nepal later pointed a finger at a disinformation campaign waged by government-affiliated actors in China. While China vehemently denied the charge, considerable US diplomatic effort went into explaining MCC’s model and assuring Nepali parliamentarians that the aid agency was established to tackle poverty and not, as some claimed, act as a tool of economic coercion or infringe on Nepal’s sovereignty.

Ultimately, the decision rested with Nepal’s legislature. And in 2022, when Nepal’s parliament finally ratified the agreement, the US Embassy and MCC celebrated the move (while continuing to provide reassurances that the compact reflected a partnership centering economic growth). The vote of confidence in the US–Nepal relationship rested in part on an understanding of MCC’s economic development mission and the promise of its partnership.

Earlier this year, amid the administration’s initial foreign aid freeze, The New York Times highlighted the potential geopolitical risk in Nepal posed by curbing MCC expenditures. Again, as part of the compact, Nepal had agreed to its own considerable investment, and some voiced worry. Shortly after the story ran, the US government greenlit select compact activities to continue during the aid review period. But now, with DOGE having recently put a target on MCC, its future—and that of the compact—looks far from certain.

While shuttering MCC—an agency unfamiliar to many Americans—may barely register domestically, the impact felt in Nepal would be real. Coverage in The Kathmandu Post and other Nepali media underscores this. Terminating MCC’s investments would validate critics’ concerns and demonstrate American unreliability precisely when consistency matters most. The United States abandoning its commitment hands China a strategic victory on a silver platter.