Trump's Decision to Suspend Foreign Aid: Major Impact On Nepal's Development ?

The U.S. Department of State instructed the suspension of nearly all foreign aid programs, with a temporary halt on new aid following the executive order by President Donald Trump on Monday. This suspension, to last 90 days, shall permit a review of the programs of foreign development assistance.

The United States is the world's largest provider of international aid, spending $68 billion on foreign assistance in 2023. The new policy, however, is likely to affect many sectors that include development and military assistance. But emergency food aid and military aid will still be allowed for Israel and Egypt.

Impact on Nepal

Along with this, the suspension of foreign aid, USAID has conveyed to Nepal that all the programs under foreign aid will be stalled for three months. In a letter to Nepal's Ministry of Finance, confirmation was made regarding the putting-on-hold project related to US aid, including health, education, agriculture, and inclusive policy. The decisions regarding continuation would be based on review.

This will affect the projects and programmes worth about NPR 26 billion in Nepal. The U.S. has been the largest donor so far as providing various assistance in sectors including education, health, drinking water, governance, disaster management, sanitation, infrastructure development, climate change, and green economy projects to Nepal. Most of this is coming through USAID.

U.S. assistance to Nepal includes both budgetary (direct) and non-budgetary (external) funding. Key areas funded by U.S. aid include maternal and child health, family planning, HIV/AIDS, water supply, sanitation, governance, disaster resilience, and basic health services. In addition, the U.S. has supported financial and administrative reforms, and agricultural policy management in Nepal.

The suspension will be a huge step back for the development plans of Nepal. A target of NPR 52.32 billion in foreign aid had been estimated by the government. U.S. aid also contributed directly to the post-earthquake reconstruction with the provision of $19 million for rebuilding, along with 3.798 million COVID-19 vaccines to help fight the pandemic. In the year 2020, U.S. development assistance to Nepal was $40 million.

A strategic agreement signed in 2022 by the Ministry of Finance of Nepal and USAID committed $690 million in aid to the country until 2027, but this new suspension might affect the continuation of this agreement.

Former USAID director Dave Harden warned that it is not only the ongoing aid that would be affected but possibly also the halting of further funding for projects already in the pipeline and scheduled to receive additional funding.

But this will not impact U.S. aid to Nepal via the MCC. The move by President Trump to suspend foreign aid has created widespread shock and concern around the world.