The US-China relationship has entered a period of great uncertainty and instability as China has become more powerful and more assertive in the international arena. Similarly, China’s active role in the South Asian region has flared India’s security sensitivities. IPS as a strategy includes a military component, which aims to deter growing Chinese influence in the region. While some argue that IPS and MCC are closely related as outlined in the U.S. National Security Strategy, others maintain that such claims are overblown and that Nepal would be losing out on one of the largest U.S. grants in recent history for the development of energy infrastructure and road maintenance in Nepal.

Nepal’s political parties and a large section of the public continue to be divided over the program, generating great controversy and forcing the government to put the program on hold. Foreign aid and the influence that come with it has remained a contested topic in geopolitically sensitive Nepal. However, the MCC debate has been politicized, polarizing political parties and the populace. Whether or not MCC is a part of the broader IPS strategy has taken center stage, triggering intense debates on the compact and if it undermines Nepal’s sovereignty and constitution. The “will they, won’t they”, has invited negative reactions domestically and internationally.

The United States also has good reason to be wary. It has become increasingly apparent that along with domestic politicking, geopolitical influences have affected the decision making process in Nepal. American officials have also raised similar suspicions. A US state department spokesperson has said that The United States believes that China has “actively fomented or encouraged or funded or facilitated” a disinformation campaign in Nepal against a $500-million dollar US grant project”.

The constant politicization and delay in the compacts’ parliamentary ratification in Nepal has caused frustration among Americans. According to reports, Donald Lu, a top American official, “warned that the failure on the part of Nepal to get the compact ratified by the parliament by the February 28 deadline might result in the United States ‘reviewing’ its relations with Nepal”. American frustration with the continued delay of the compact’s ratification was also apparent during MCC’s Vice President Fatema Sumar’s visit to Nepal in September of last year. However, the messaging this time is firm and while the reorientation of United States’ policies towards Nepal may not be immediate, the fate of the compact is likely to become a deciding factor. However, the change of tone of American officials from persuasive to coercive in their dealing with Nepal suggests that the cracks in US-Nepal relations have begun to show. 

The compact is currently tabled in the parliament awaiting endorsement.