The Platform

Jules Henze

Kathmandu signed a multi-billion dollar loan with Beijing that falls under Xi Jinping’s ambitious Belt and Road Initiative to facilitate railway lines in the northern hilly regions of Nepal. Even though China has publicized BRI as a dream project to help every country achieve its infrastructure and trade goals, its legitimacy is still under a huge question mark. In 2017, China took over Sri Lanka’s Hambantota Port and is planning to take over an airport in Uganda if it fails to pay back its loan. Therefore, China’s activities in Sri Lanka and Africa should be a cautionary tale for Nepal.

Nepal’s economy depends heavily on foreign aid from countries like China and the United States. If Nepal chooses to stay back from China’s Belt and Road Initiative, the only developmental funds available for the Himalayan nation will be a $500 million dollar grant from the United States that falls under the Millennium Challenge Corporation. Since the MCC is a development assistance grant and not a loan, there is little risk of debt-trap diplomacy even if Nepal signs this agreement. Nepal needs foreign aid to fulfill its infrastructural development goals, and the two funding options available for Nepal are the Millennium Challenge Corporation and the Belt and Road Initiative. Even though both are non-mutually exclusive funds, Nepal should prioritize the grant money from the United States because of the risks associated with loans from China.

Since the $500 million dollar grant provided by the United States does not need to be repaid, it’s clear that Nepal will get more from the MCC than the BRI. The BRI project focuses on developing railway lines from China to the northern hilly regions of Nepal. The plans also consist of proposals from China to connect Kathmandu with China through the northern hilly region known as Kerung.

Even though Nepal’s communist-led governments were somewhat optimistic on this issue, the feasibility of the project has been frequently questioned by Nepalese developmental scholars. They believe that this project is technically complex and would require more financial resources than projected by the Chinese government. Hence, Nepal will be unable to pay such a massive loan burden, making Nepal another victim of Chinese debt-trap diplomacy.

On the other hand, since the U.S.-led MCC grant does not have to be paid back, there are zero chances for debt-trap diplomacy. The loan is granted to Nepal based on 20 different scientific metrics, which can be checked and rechecked by the Nepalese government at any moment. Apart from that, the contents of these loans are also practical and advantageous to Nepalese society. The MCC program aims to improve Nepal’s transportation and hydroelectric sector to uplift Nepal’s declining trade sector. It will positively impact Nepal’s GDP as it is expected to benefit more than five million households and 24 million people. In contrast to China’s BRI, which has a severe negative impact on the environment, the MCC project will have less risks to the environment as it operates under a different set of standards.

Nevertheless, despite having several merit points, Nepal is unable to sign the MCC grant due to some Nepalese politicians’ misunderstanding of the Millennium Challenge Corporation. Several Nepalese politicians view the MCC as a part of the Indo-Pacific strategy that may have a military component. The acceptance of the grant may result in a limited U.S. military presence in Nepal. However, it’s a clear misinterpretation of the grant’s intention because the MCC and the United States’ Indo-Pacific strategy are two different programs that are independent of one another with different purposes and motives.

The signing of the MCC grant is an excellent opportunity to improve Nepal’s crumbling infrastructure. Since the MCC is a grant that does not need to be paid back, for a small country with a population of 29 million people, Nepal’s economy needs a cash infusion. Observing the current trends of Chinese debt-trap diplomacy, it is evident that the advantages of the MCC grant outweigh the benefits of the Belt and Road Initiative by a significant margin.

Sachin Tiwari is an undergraduate student currently pursuing his degree in the field of International Relations. His research interests include international security, civil-military relations, debt-trap and development politics. He has also written numerous research article on espionage, power-politics, nuclear proliferation and economic development models.