On 10th January 2025, the Trump administration in the United States declared a 90-day policy pause or the U.S foreign aid or international assistance. As the suspension was made within still wider context of reconsideration of priorities of foreign aid, its implications may lie in a rather long-term nature of the issue, especially for countries that depended on American assistance. As the United States remains an important source of development aid for the country, Nepal is expected to be affected economically; foreign aid is very important in financing important projects in different fields.
Nepal’s Dependence on Foreign Aid
Nonetheless, for as long as I have been observing Nepal, international assistance has been at the heart of the country’s development plan. As a least developed country in south Asia, Nepal depend on donor assistance for funding issues like poverty, physical infrastructure, health and education. The United States has also been one of the major donors of Nepal through that has extended their aids through USAID, United States agency for international development executing so many programs which intended to uplift living standard of the people of Nepal and further development of the country.
We have focused on such as health, education, disaster response, governance, and infrastructure sectors that benefited from USAID. for example United States has supported Nepal in health sector to avail health services, maternal health, HIV/AIDS, emergency and disaster that has effective role in Nepal socio-economic growth.
Short-Term Economic Impacts
In the short run it is evident that a halt in the flow of U.S foreign aid to Nepal will have severe repercussions to majority of Nepal’s development endeavors. Those who rely on U.S funding as an essential source of financing for their programs may be in serious cash trouble, including government officials and local organizations. This could eventually result into crucial projects particularly in the area of infrastructural development, health sector and education being significantly affected through project delays or termination.
Areas that are important to see sustainable development, such as programs that work for the governance reforms or against corruption where U.S support is significant can stall as well. A cut off from the United States in these areas may slow down the Nepalese efforts to establish ‘good’ governance systems.
At the same time, humanitarian aid of the United States frequently aids Nepal where it is needed most. Losing control over its population, which is unable to have children on its own and relies on international assistance for disaster response including earthquakes and floods, Nepal. If the American assistance is stopped abruptly, then the pace of economical as well as physical reconstruction in Nepal may decline particularly after a natural calamity.
Long-Term Consequences for Development
Nevertheless, a long-term threat may be posed by continued suspension of its foreign aid next year beyond the provision of the 90-day notice. This deadlines may slow the implementation of fundamental development projects that would be critical for enhancing financial development of the country in cases where financial support is restricted. This may lead to a slowdown of the rate of development towards the attainment of the sustainable development goals or goals and targets (SDGs or G&Ts), mainly in sectors of health and education that the US has been funding.
Besides, the question may remain about the Nepalese situation because a cut in foreign assistance may only deepen its problems. The country’s fiscal budget largely relies on external aid, and hence the loss of the U.S. funding may make the government source for loans, or other donor countries which may lead to more debt hood and long-term fiscal indiscipline.
Potential for Diversification of Aid Sources
Although the suspension may lead into short term issues within the U.S the Nepalese government may be able to turn this around by looking for other sources of foreign assistance. There are also foreign players such as India, Japan, China, foreign Non-governmental organizations or international organizations such as the World Bank, the European Union and so on. These nations can provide fiat money to bridge critical funding shortfalls left by US aid.
Still, it is essential also use the understanding that it could be not as constant or extensive as the help Nepal has received from the USA in recent times. This means Nepal will still need to find the ways to cope with such funding scarcities in the future; either increasing own domestic revenues and/or improving relations with other donors.
The Need for Domestic Economic Reforms
The suspension of aid from United States may actually force Nepal to embrace even more economic liberalization. Since the country may experience portentious interruption of foreign funding, the government might have no other option than to turn inwards, innovate on how to raise more domestic revenues, enhance governance and come up with more efficient mechanisms for public- private partnership. Attaining these results may at long last weaken the donor-relationship link partly, essentially forcing the country to become a more economic-sustainable nation.
At the same time, the Nepalese policy makers will have to guard against complete loss of aid that may potentially disrupt the development trend in Nepal. Developing a new balance between a autarkic economy and foreign assistance will also be important for Nepal’s future development.
Conclusion
The suspension of the $90m in U.S. aid grants to Nepal said, will not necessarily have potentially disastrous impacts on the Nepali economy in the first 90 days as suggested by the U.S. government, but it acts as a wakeup call that Nepal’s dependency on foreign aids makes it rather sensitive on changes in international developments. These short-term disruptions could disrupt healthcare programs, education, disaster response programs or any other development programs that are underway all in the longer-run. To do so, Nepal will have to look for other sources of finance, spread its aid besides and undertake domestic changes to minimize on the reliance on aid in the long-run.
With the world observing how the United states has been managing its foreign aid policy, Nepal needs to steer this volatile aspect while planning and implementing the development goals, equally and still without its course being derailed.
