Deuba government faces challenge over American deadline on compact

Differences between PM, Prachanda over U.S. grant imperil ruling coalition. Projects include cross-border electricity trade with India

Nepal Prime Minister Sher Bahadur Deuba’s government is facing a major challenge this month as the Biden administration has set a deadline for the ratification of the US Millenium Challenge Corporation (MCC) development compact by February 28, which members of the ruling coalition are divided on.

The rift over the MCC agreement and development grant of more than $500 million, which has divided Mr. Deuba’s National Congress party (NC) and his coalition partner Pushpa Kamal Dahal’s (Prachanda) Communist party (Maoist), is being watched closely by South Block as it could not only affect the stability of the government but also play a decisive role in local elections set for May 13 and general elections later this year.

The U.S. deadline was set in a letter sent to Mr. Deuba and Mr. Prachanda on February 3 by the MCC Acting CEO in Washington, made available to the media, and followed up with a stern telephone call by Assistant Secretary of State for South and Central Asia Donald Lu on February 10 to PM Deuba, Mr. Prachanda and Opposition leader of the Communist Party (UML) K.P. Sharma Oli. In the call, sources said, Mr. Lu warned that the relations would be “affected” if the compact — originally signed in 2017 — is not ratified in the Nepal Parliament by month end.