Nepal approves US’ Millennium Challenge Corporation grant amid protests. What’s next?

Weeks of instability in the Nepali parliament finally resulted in the ratification of the USD 500 million grant deal with US agency Millennium Challenge Corporation. This was preceded by massive protests by political parties that are opposing the government’s deal, viewing it as a threat to Nepal’s sovereignty

March 02, 2022 by Shriya Singh
Members of Left parties in Nepal protest the MCC in Nepal's capital, Kathmandu. Photo: Skanda Gautam / Himalayan Times

In Kathmandu, protests against Nepal’s USD 500 million grant deal with US agency Millennium Challenge Corporation (MCC) continue to grow even following the ratification of the deal by Nepalese parliament on February 27. The Nepali coalition government led by Prime Minister Sher Bahadur Deuba of the Nepali Congress had tabled the deal for discussion in the parliament on Monday, February 21, and later postponed the discussion to February 25.

The approval comes amid significant mobilizations over the past week against the deal. On February 20, massive protests taking place outside the parliament building in Kathmandu were met with violent repression. Police fired teargas and water cannons and injured several people in an effort to disperse the protests. In another anti-MCC protest on February 16 police also violently repressed protesters. Around 100 people were wounded. 

According to local sources, more than 10,000 people have since participated in mass rallies and protests against the MCC development assistance grant. Several organizations like the All Nepal Independent Students’ Union (Revolutionary) and the All Nepal Peasant Federation (ANFPA) have joined hands with the political parties opposing the deal, which include the Communist Party of Nepal- Unified Socialist (CPN- US), CPN- Revolutionary Maoist, CPN-Maoist Centre and Rastriya Prajatantra Party (RPP).

The opposition to the MCC is based on the view that accepting the aid will affect Nepal’s sovereignty and agency as an independent political entity in South Asia. Balram Banskota, standing committee member of CPN-US and ANFPA deputy secretary general told Peoples Dispatch that “the MCC deal’s vague rules and regulations pose a direct threat to Nepal’s security and sovereignty. It is not certain whether the tax collected from the land occupied by MCC for development will go to Nepal.”

Nepal was the first country in South Asia to sign the compact deal with MCC for developmental aid in 2017. In 2019, Sri Lanka also had a similar deal with the US-based corporation but it was later discontinued by the agency’s board in 2020 citing “lack of partner country engagement.”

MCC and the Nepal deal

The Millennium Challenge Corporation (MCC) is an independent foreign aid agency created by the US congress in 2004.  Since its inception, the MCC has signed 37 compacts with 29 countries, with an expected impact of approximately 175 million people. 

The MCC describes its selection process as “competitive”. It claims a clear selection process through which recipient countries are chosen for grant of aid for “reducing poverty” and “generating growth”. Under the Nepal Compact agreement, the grant investments come under two broad heads of critical services – maintenance of road quality and increased availability of electricity through a 187 miles-long electricity transmission line in Nepal.

MCC: A geopolitical issue or signal of domestic instability?

The debate within Nepal around the MCC deal is being viewed in terms of the geopolitical rivalry between the US and China. Nepal as a landlocked country continues to assert its agency as a sovereign nation over a national issue. 

After protests in Kathmandu on February 18, the US embassy in Nepal took to Twitter to signal the use of “propaganda” in the MCC controversy.  The following day, US ambassador to Nepal Randy Berry tweeted “violence and incitement to violence are never acceptable,” with a clear reference to the “discourse” on the MCC deal.


The US Embassy in Nepal released a statement with a celebratory tone following the ratification of the deal in parliament.

Although MCC describes its grant-based development process to be “country-led”, concerns about Nepali sovereignty are being expressed within the country’s borders. The deal is being viewed as part of the US’ Indo-Pacific strategy in South Asia. Many believe that Nepal’s recent inclinations towards China form the rationale behind the current agitation. In 2017, Deuba’s government had signed a framework agreement with China’s Belt and Road Initiative (BRI) for a railway project linking Kathmandu to Central Asia.

The debates on geostrategic concerns around the MCC in Nepal have however largely ignored the issue at the core of the controversy – Nepal’s efforts to assert its identity as a sovereign nation in South Asia instead of being coupled in the US-China tug-of-war.

Professor Saurabh at the Centre for South Asian Studies at Jawaharlal Nehru University, New Delhi, says that the debate around the MCC is more about the worsening political instability in Nepal than geostrategic positioning. “As a developmental project, MCC is really about Nepal’s ability to take decisions vis-à-vis US or China. The politicians in the country have failed to defend their decision to sign the deal in 2017 as can be seen in the MCC controversy. What plagues Nepal at the moment is its chronic political instability which is spilling over to any progress in the country’s development.”

Since the Deuba government came to power in 2017, it has been dissolved twice until the Supreme Court in 2021 declared the dissolution to be invalid and reinstated the House of Representatives and Deuba as its head as prime minister.

According to local media, the parliament vote followed a meeting of the ruling five-party coalition at the prime minister’s residence. The final decision was to endorse the agreement after months of back-and-forth by supporting parties like the CPN- Maoist Center threatening to dismantle the present coalition.

With general elections set to take place in November 2022, the MCC controversy will continue to play a deciding role in domestic politics and for Nepal’s relations in the region.