MCC expenditure fell by 14.2% after grants were stopped.

The Millennium Challenge Account (MCA) Nepal, the agency responsible for implementing the Millennium Challenge Corporation (MCC) grant, spent Rs1.92 billion in the first nine months of the current fiscal year 2024/25.

The Finance Ministry provided this data based on data till mid-April. For the current fiscal year, it allocated a total budget of Rs13.36 billion to MCA Nepal, including grants and other sources. The allocation included Rs1.24 billion for recurring expenditure and Rs12.12 billion for capital expenditure. As of mid-April, MCA Nepal had to spend Rs7.13 billion—Rs845.8 million for recurring expenditure and Rs6.28 billion for capital expenditure.

Instead, it spent only Rs 465 million on recurrent expenditure and Rs 1.43 billion on capital expenditure, totalling Rs 1.90 billion. Compared to the annual budget, MCA Nepal spent only 37.5 percent of its recurrent allocation and 11.9 percent of its capital budget, amounting to just 14.2 percent of total expenditure by mid-April. Stakeholders have described this spending level as unsatisfactory. They say spending reflects progress—and low spending usually indicates weak project implementation.

However, the United States suspended the MCC grant in Falgun (mid-February to mid-March). While it has not yet taken a final decision, officials say the three-month suspension significantly contributed to the low spending.

Nepal and the U.S. signed a bilateral agreement on September 14, 2017, under which the U.S. agreed to provide a grant of $500 million through MCC to support road and power infrastructure. As a part of the agreement, Nepal committed to contribute $130 million.

Nepal recently pledged an additional $67 million for the project, while MCC pledged another $50 million in grants. This brought the total funding to $747 million, including $550 million from MCC and $197 million from the Nepal government. However, the suspension of the MCC grant has thrown the project into uncertainty. Under the project, contractors are building a 315-km-long 400 kV transmission line, three 400 kV substations, a 40-km stretch of the East-West Highway and repairing the Narayanghat-Mugling road. After signing the contract, they have started work on the substations. Similarly, they started construction of the 18-km-long Butwal-India border transmission line after the contract agreement. 

MCA Nepal provided advance payments to the concerned contractors, which it recorded under capital expenditure. Authorities have moved ahead with the contracting process for the construction of three transmission lines totalling 297 km and a 40 km long road. However, they have not yet contracted for the maintenance of the Mugling-Narayanghat road. Although the MCC grant suspension has halted work on the MCC project, MCA Nepal continues to operate its office and carry out the tendering process.

Underspending raises doubts over timely project completion

MCA Nepal has spent very little since the beginning, and the current grant suspension has further reduced spending. The slow progress has limited spending, raising concerns about whether the project will be completed on time. If the MCC grant continues, the project will have to meet conditions set by the United States.

The agreement with the US requires the work to be completed within five years of implementation. Since the project began on August 30, 2023, officials are under pressure to complete construction by August 2028. However, the low initial expenditure reflects slow progress, creating challenges in timely completion. The current grant suspension has increased uncertainty about the project's future.