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Published on 10/26/2025
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Navigating the Evolving Landscape: United States and Nepal Relations in 2025
Navigating the Evolving Landscape: United States and Nepal Relations in 2025 :
The relationship between the United States and Nepal, established officially in 1947, has long been characterized by diplomatic friendship and extensive development cooperation. Over the decades, this partnership has broadened to encompass various governmental and people-to-people exchanges, playing a crucial role in Nepal's socio-economic journey. As 2025 unfolds, this intricate relationship continues to evolve, facing new challenges and opportunities amidst shifting global dynamics and policy changes in both nations, demanding careful attention to its multifaceted dimensions.
While historical ties remain strong, recent developments, particularly from the US side, have introduced elements of uncertainty and re-evaluation. The interplay of aid, trade, and geopolitical interests forms the core of this dynamic, influencing everything from infrastructure development to public health initiatives. This exploration delves into the contemporary state of affairs, highlighting the most recent news and policy shifts impacting the future trajectory of US-Nepal engagements.
The Enduring Role of US Development Assistance :
For over seventy years, the United States has been a cornerstone of development assistance for Nepal, channeling over a billion dollars since 1951 through programs like the Point Four Program and USAID. This aid has been instrumental across critical sectors including agriculture, health, education, democratic governance, and disaster management. USAID's ongoing Country Development Cooperation Strategy for Nepal, slated to conclude by the end of 2025, aimed for a more self-reliant, prosperous, and inclusive Nepal.
Key initiatives have focused on strengthening good governance, promoting economic growth, and building resilience against natural disasters and climate change. Specifically, USAID had pledged approximately $659 million for the 2020-2025 period, targeting areas such as health outcomes, agricultural productivity, educational access, and inclusive policy development. These long-standing programs underscore the US commitment to Nepal's stability and progress.
MCC Compact: Infrastructure and Geopolitical Considerations :
A significant pillar of US financial engagement in Nepal is the Millennium Challenge Corporation (MCC) Compact, a substantial grant of $500 million signed in 2017 to improve Nepal's power transmission and road infrastructure. This ambitious project aims to bolster electricity availability, reliability, and facilitate cross-border electricity trade with India, with Nepal contributing an additional $197 million, making it the largest upfront partner contribution in MCC's history.
However, the MCC compact has not been without its controversies, sparking domestic political debates and drawing attention to Nepal's delicate geopolitical position between India and China. Critics, often with pro-China leanings, framed the MCC as part of the US Indo-Pacific Strategy, leading to delays in its ratification until 2022. Despite these debates, the compact's approval and recent developments, such as the August 2024 deal with India for high-capacity substations, demonstrate its continued importance.
Impact of the 2025 US Aid Freeze :
A notable and recent development impacting US-Nepal relations is the executive order issued by US President Donald Trump in early 2025, pausing all foreign development aid for 90 days for review. This 'America First' policy initiative has brought a temporary halt to several ongoing USAID-funded projects in Nepal, affecting sectors like health, agriculture, education, and inclusive policy. While the MCC grant is reportedly unaffected due to its independent funding structure, the freeze has created uncertainty for many other programs and the local NGOs that implement them.
This pause is part of a broader re-evaluation of US foreign assistance to align it more closely with US national interests, potentially leading to further reductions beyond the initial 90-day period. For Nepal, this poses challenges to critical developmental and humanitarian needs, potentially undermining progress towards graduating from Least Developed Country status by 2026 and achieving Sustainable Development Goals by 2030. The implications of this policy shift are being closely watched by both governments and international observers.
Bilateral Trade and Investment Framework :
Beyond direct aid, economic relations between the United States and Nepal are also fostered through a Trade and Investment Framework Agreement (TIFA), providing a platform for discussions on enhancing trade and investment. The seventh TIFA Council Meeting, held in Kathmandu on September 16, 2024, saw both nations exchanging views on diverse trade-related matters, including agriculture, labor rights, digital economy, and intellectual property protection.
Nepal has expressed keen interest in preferential market access and US support to improve its investment climate, particularly in attracting more foreign investment. Discussions also focused on the Nepal Trade Preference Program (NTPP), set to expire at the end of 2025, with Nepal advocating for its extension and expansion. Transparent regulatory practices and policy stability were highlighted as crucial for fostering sustainable trade and investment, indicating areas for ongoing collaboration and reform.
Nepal's Geopolitical Balancing Act :
Nepal's strategic geographical location, nestled between two emerging global powers, India and China, inherently shapes its foreign policy and international relations. The United States’ increasing interest in Nepal, partly driven by its Indo-Pacific Strategy, adds another layer to this complex geopolitical equation. This necessitates a delicate balancing act for Nepal to maintain its traditional non-alignment while engaging with diverse international partners.
The ongoing competition for influence in the region, particularly concerning infrastructure and energy projects, underscores the importance of Nepal's diplomatic agility. While welcoming cooperation, Nepal aims to safeguard its sovereignty and promote its national interests amidst these competing external pressures. Adopting a multialignment approach in its foreign policy is seen as crucial for navigating the evolving international political landscape effectively.
On the Sporting Field: Nepal vs. USA in Cricket :
Beyond diplomatic and economic ties, the competitive spirit between the United States and Nepal also played out on the cricket field recently. On October 26, 2025, the two nations clashed in an ICC Cricket World Cup League 2 match at the Dubai International Cricket Stadium. In this encounter, the USA set a target of 263 runs for Nepal, posting 262 for 6 in their allotted 50 overs, driven by a strong 95-run partnership from Milind Kumar and Smit Patel.
Nepal, currently placed seventh in the league standings, faced a significant challenge against the USA, who held the second position. The match was a crucial opportunity for Nepal to improve its standing in the league, aiming for a top-four finish to secure direct qualification to the World Cup qualifier. Such sporting events offer a different, yet engaging, dimension to the 'United States vs. Nepal' narrative, showcasing talent and competition in a global arena.