“A road to resilience.” The picture depicts a field visit to deliver cardamom saplings, where the vehicle got stranded in mud and monsoon. Years later, little has changed. In many parts of Nepal, half the year remains a struggle for access, as unpaved roads vanish under landslides and floods, leaving villages isolated and development out of reach. (Image Source: Photograph taken by Shanti Regmi while working with a non-profit in Nepal.)
By Shanti Regmi
Foreign aid has long been a cornerstone of Nepal’s economic and social development. The first formal international development initiative in Nepal commenced under the United States’ Point Four Program on January 23, 1951, focusing on democratization and human resource development.[i] Since then, the U.S. has provided technical and capital assistance to support projects across nearly every economic sector in the country. From FY 1990/91 to FY 2020/21, the total U.S. aid disbursed reached $1,752.18 million, accounting for 48.27% of total U.S. aid. Grants comprised 49.74%, while loans represented 1.99% of the total U.S. assistance.[ii]
However, the U.S. President Donald Trump’s executive order on January 20, 2025, mandating a 90-day suspension of foreign development assistance to assess programmatic efficiency and alignment with U.S. foreign policy,[iii] has stalled critical projects in many developing countries, including Nepal. This directive disrupts USAID-funded initiatives in inclusive policy, education, health, and agriculture, jeopardizing and delaying essential progress in Nepal.[iv]
The Immediate Shockwave: Development at Risk
Trump’s foreign aid suspension sent shockwaves through Nepal’s development sector. For example, the MCC Nepal Compact, a landmark $500 million agreement between the U.S. and Nepal, supplemented by Nepal’s historic $197 million contribution, was designed to overcome two critical barriers to Nepal’s economic growth: unreliable electricity and costly transportation. Launched in August 2023, the compact aimed to expand Nepal’s electricity transmission network, strengthen cross-border trade with India, and improve national highway maintenance, potentially benefiting millions by boosting businesses and enhancing access to electricity, education, and healthcare.[v] However, following Trump’s executive order, activities funded by the MCC were abruptly suspended for 90 days, halting progress on these transformative projects and leaving stakeholders uncertain about the compact’s future.[vi]
The Long-Term Silver Lining: Self-Reliance and Economic Resilience
Historically, countries like South Korea that have effectively made the shift from relying on aid to becoming self-sufficient have had phenomenal economic growth. Nepal, which is currently dealing with reductions in foreign aid, can draw lessons from this experience and may forge a path toward more resilient and independent development in the circumstances. South Korea, once a major aid recipient following the devastation of the Korean War (1950-1953), strategically invested in education, industrialization, and governance reforms, eventually transforming into a high-income economy.[vii] From 1962 to 1989, South Korea underwent rapid economic transformation by implementing an export-driven, industry-led strategy. This approach fostered large-scale industrial conglomerates, leveraged economies of scale, and facilitated technology transfer, enabling South Korea to achieve international competitiveness and attain newly industrialized nation status.[viii]
Bhutan also offers an inspiring example of self-sufficiency and sustainability. By harnessing its hydropower resources, it generates revenue through energy exports, reducing reliance on foreign aid.[ix] While Nepal’s geopolitical and economic landscape differs, Bhutan’s experience demonstrates the future benefits of investing in hydroelectricity and other renewable resources, making it a pertinent model for Nepal as the country explores sustainable methods of becoming economically resilient.
Nepal, too, has untapped potential. Strengthening domestic resource mobilization through industrialization, tourism, tax revenue systems, private sector investment, and trade alliances ought to serve as Nepal’s primary objective rather than reliant upon outside aid.
Policy Shifts: What Nepal Must Do
To capitalize on this wake-up call, Nepal must implement bold policy shifts. First, the government should prioritize strengthening domestic industries. With 60% of Nepal’s people relying on agriculture, contributing to a quarter of the country’s GDP,[x] modernizing this sector can create jobs, strengthen communities, and free Nepal from its dependence on remittances and foreign aid, unlocking a future where citizens thrive from within.
Second, Nepal must aggressively harness its natural resources. Nepal sits on a hydropower goldmine, with approximately 43,000 megawatts (MW) of 83,000 MW identified as economically viable.[xi] Previously, Nepal’s energy trade was limited to India.[xii] The historic trilateral deal signed by Nepal, India, and Bangladesh will be the first time that Nepal exports electricity to a third nation. This is an important milestone that unlocks the door to broader regional energy cooperation and long-term economic benefits.[xiii]
Third, Nepal should diversify its trade and investment partnerships. The heavy reliance on India and China for trade leaves Nepal vulnerable to geopolitical shifts and tensions in the region.[xiv] Nepal’s landlocked position limits its trade options, making it heavily reliant on India for access to the sea. This dependence has allowed Indian businesses to dominate Nepal’s market, stifling local industries and forcing many Nepalese into low-wage labor.[xv] Nepal’s heavy dependence on India has, at times, led to substantial disruptions and turmoil within the country. For instance, India cut off fuel supplies to Nepal in 1971 and 1988 due to disputes over the renegotiation of trade and transit treaties, creating widespread hardship for ordinary citizens. These challenges played an integral component in Nepal’s determination to restore its democratic government in 1990.[xvi] Therefore, expanding trade agreements with ASEAN countries, the European Union, and the United States and focusing on high-value exports like organic agriculture, handicrafts, energy, and information technology services can foster the country’s economic resilience.
Rethinking Development Assistance: A Strategic Approach
If Nepal achieves greater self-sufficiency, its development could be defined by a robust domestic industrial base, reduced dependence on foreign aid and imports, and a resilient economy. Strategic investment in energy, transportation, and digital connectivity infrastructure would drive local industries and boost productivity. Given that 60% of the population is engaged in agriculture, and contributes 24% to the national GDP,[xvii] modernization of the sector would enhance food security and reduce imports. Entrepreneurship and small-to-medium enterprises would flourish, fueling economic growth and job creation, thereby curbing labor migration. Strengthening governance through political stability, education reform, and technical training would foster innovation and industrial expansion. Additionally, diversifying trade partnerships beyond India and China would enhance Nepal’s economic autonomy, resilience and global bargaining power.
Trump’s foreign aid cuts are not a death sentence for Nepal’s development – they are a call to action. The path ahead is Nepal’s to shape as one of resilience, dignity, and true economic independence. The world of Trump or any other foreign entity does not owe us prosperity – Nepal must build it itself.
[i] Bhandari, Bishnu B. 2024. “Foreign Aid and Agricultural Development in Nepal.” NCWA Annual Journal 55 (01): 119–24. https://doi.org/10.3126/ncwaj.v55i01.63059, 1.
[ii]Sharma, Bina Devi. “TREND, COMPOSITION AND IMPACT OF US AID ON ECONOMIC GROWTH OF NEPAL.” PhD diss., Tribhuvan University, 2022.
[iii] The White House. 2025. “Reevaluating and Realigning United States Foreign Aid – the White House.” The White House. January 21, 2025. https://www.whitehouse.gov/presidential-actions/2025/01/reevaluating-and-realigning-united-states-foreign-aid/.
[iv]“Trump’s Aid Freeze Hits Four USAID Projects in Nepal.” 2025. @Kathmandupost. The Kathmandu Post. 2025. https://kathmandupost.com/national/2025/01/28/trump-s-aid-freeze-hits-four-usaid-projects-in-nepal.
[v] “U.S. Relations with Nepal – United States Department of State.” 2018. United States Department of State. 2018. https://www.state.gov/u-s-relations-with-nepal/.
[vi] Sharma, Gopal. 2025. “US Grants for Two Key Nepal Infrastructure Projects Suspended after Trump Order.” Reuters, February 20, 2025. https://www.reuters.com/world/asia-pacific/us-grants-two-key-nepal-infrastructure-projects-suspended-after-trump-order-2025-02-20/.
[vii] Harvie, Charles, and Hyun-Hoon Lee. 2003. “Export-Led Industrialisation and Growth: Korea’s Economic Miracle, 1962-1989.” Australian Economic History Review 43 (3): 256–86. https://doi.org/10.1046/j.1467-8446.2003.00054.x.
[viii] Harvie, Charles, and Hyun-Hoon Lee. 2003. “Export-Led Industrialisation and Growth: Korea’s Economic Miracle, 1962-1989.” Australian Economic History Review 43 (3): 256–86. https://doi.org/10.1046/j.1467-8446.2003.00054.x., 1.
[ix] Frame, Bob. 2005. “Bhutan: A Review of Its Approach to Sustainable Development.” Development in Practice 15 (2): 216–21. https://doi.org/10.1080/09614520500041963, 216.
[x] Bidhya Chhetri, and Sudip Ghimire. 2023. “Gender Differentiated Impacts of Climate Change on Agriculture in Nepal: A Review.” Innovations in Agriculture, January, 01–1. https://doi.org/10.25081/ia.2023-021.
[xi]Bhatt, Pawan, and Khem Raj Joshi. 2024. “Hydropower Development in Nepal: Status, Opportunities and Challenges.” Journal of UTEC Engineering Management 2 (01): 124–35. https://doi.org/10.36344/utecem.2024.v02i01.011.
[xii] “Nepal, India and Bangladesh to Sign Electricity Trade Deal on July 28.” 2025. @Kathmandupost. The Kathmandu Post. 2025. https://kathmandupost.com/national/2024/07/18/nepal-india-and-bangladesh-to-sign-electricity-trade-deal-on-july-28.
[xiii] Chaudhary, Deepak. 2024. “Hydropower Development and Economic Growth in Nepal: Challenges and Prospects.” Journey for Sustainable Development and Peace 2 (1): 1–18. https://doi.org/10.3126/jsdpj.v2i1.63236.
[xiv] Thapa, Santa Bahadur. 2025. “Nepal’s Dependent Diplomacy: A Comparative Analysis of Indo-China Relations and Their Impact on Development,” January. https://doi.org/10.2139/ssrn.5138913.
[xv] Luitel, Samira. 1970. “Dependency and Underdevelopment: The Nepalese Context.” Occasional Papers in Sociology and Anthropology 11 (January): 202–20. https://doi.org/10.3126/opsa.v11i0.3037.
[xvi] Luitel, Samira. 1970. “Dependency and Underdevelopment: The Nepalese Context.” Occasional Papers in Sociology and Anthropology 11 (January): 202–20. https://doi.org/10.3126/opsa.v11i0.3037.
[xvii] “Department of Agriculture.” 2024. Doanepal.gov.np. 2024. https://doanepal.gov.np/downloadsdetail/3/2018/44178961/.
ABOUT AUTHOR/S
Shanti Regmi
Shanti Regmi is a second-year Master of Arts student in International Development at SIS, American University. With several years of leadership experience as an Executive Director in Nepal’s nonprofit sector, she has spearheaded initiatives in agricultural development and women’s menstrual health in rural communities of Nepal. Passionate about driving impact in food security, agriculture, climate change, migration, and gender equity, she leverages her expertise to advance sustainable and inclusive development solutions.
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