After much protest and procrastination, the Nepali parliament has finally ratified the Millennium Challenge Corporation (MCC)-Nepal Compact. This will pave the way for opening up the country to a $500-million grant from the United States for electricity transmission and road development projects. Nepal and the US had signed the MCC agreement in 2017. Concerns over sovereignty, pressure from China, and domestic politics contributed to the five-year delay in ratifying it. The pact’s Section 7.1, for instance, says the agreement will prevail over Nepal’s domestic laws, prompting critics to claim that that is a violation of Nepal’s sovereignty. There were also concerns in Nepal that the US aid is part of its Indo-Pacific strategy to contain China. As a neighbour of China and one that has increasingly close ties with Beijing, Nepal was apprehensive that the MCC would draw it into America’s fight against China. Meanwhile, China, whose presence and influence in Nepal has mounted dramatically in recent years — not only is Nepal a member of China’s Belt and Road Initiative, but also Chinese envoys and officials have played a role in the formation and collapse of governments — is said to have pressed politicians and parties to resist the MCC. Nepal’s parties have also been opposing ratification not on any issues of principle but to gain leverage or simply to bring down the government. Mass protests against the MCC, reportedly instigated by politicians close to China, have also roiled the country. Ratification of the MCC compact has therefore not come easily.
Some of Nepal’s apprehensions have been addressed. A declaration attached to the MCC agreement that was ratified by parliament clarifies that the grant is not part of the Indo-Pacific strategy. It also clearly states that Nepal’s Constitution will prevail over the grant’s provisions. The funding will enable Nepal to address two major obstacles to economic growth in the Himalayan country — inadequate electricity and poor road transport connectivity. This is therefore an opportunity for Nepal to boost its economy. The MCC is a five-year programme. If the grant funds are unspent, they will have to be returned. Nepal must make full use of the funds and meet project deadlines. The clock has started ticking. Nepal will have to contend with cost escalations in the projects due to the inordinate delay in ratifying the compact.
The pact is of benefit to India, too. In addition to pushing back against BRI and the clout it has provided China in Nepal, MCC-built infrastructure will facilitate trade with India. New Delhi must support implementation of the MCC.