US Aid Cuts Leave Nepal’s Economy in Flux
When USAID slashed $329 million in aid to Nepal, the country faced 30,000 job losses and a halt to key education programs. In response, Nepali leaders and entrepreneurs pivoted to a private‑sector‑led economy, leveraging a youthful workforce, abundant hydropower potential, and growing tech hubs to…
By Felo News Desk · Published
In a move that stunned the international community, the U.S. Department of Government Efficiency, led by Elon Musk, eliminated the U.S. Agency for International Development (USAID) and cut an estimated $329 million in humanitarian aid earmarked for Nepal. The decision left the country scrambling to replace programs that had been running since 1951, when the United States became Nepal’s first bilateral aid donor.
Immediate Impact on Nepal’s Workforce and Education
Stuti Basnyet, who had been the acting program office director for USAID in Nepal since 2024, recalled the shock that hit the nation. “Everyone went through denial first that this was even happening, to just deep grievance at how it was being done,” she told Fortune. The agency’s closure is estimated to have caused 30,000 direct job losses across the country.
Key humanitarian projects were also halted. Nationwide early‑grade reading initiatives, teacher training programs, and the review and refunding of educational materials were all suspended. Basnyet faced the daunting task of recreating these services without the steady funding stream that had supported them for decades.
Shift to a Private‑Sector‑Led Economy
With the U.S. aid stream gone, Nepal’s leaders turned to its private sector as a new engine for growth. The country, classified as lower‑middle income with a GDP of $1.447 billion, sits between India and China and boasts a demographic advantage: over 40 % of its population is aged 16 to 40. This “youth bulge” has become a catalyst for innovation and labor supply.
Basnyet co‑founded Aadyanta Advisory in 2023, a strategic advisory firm that supported nearly 400 young Nepali innovators and founders in its first year. The firm works closely with the U.S. Embassy, which continues to provide funding opportunities and policy advocacy to bolster private‑sector engagement.
Other entrepreneurs are also stepping into the void. Pukar Hamal, founder and CEO of SecurityPal, describes Kathmandu as “Silicon Peaks,” a budding tech hub nestled in the Himalayas. SecurityPal, a U.S.‑based cybersecurity firm, maintains a large office in Kathmandu and is among a handful of publicly traded U.S. companies with operations there.
Hydropower and a Growing Tech Sector
Nepal’s geography offers a natural advantage: more than 6,000 rivers and streams generate 99 % of its hydropower potential. While only about 5,000 MW have been tapped, experts estimate the country could harness over 100,000 MW as technology improves.
Amir Thapa, executive director of the American Chamber of Commerce in Nepal (AmCham Nepal), notes that the country approved nearly 7,500 foreign investment projects worth $5.5 billion through 2025. He argues that the model of heavy reliance on development grants is unsustainable and that private‑sector partnerships can fill the gap left by USAID.
Large U.S. corporations such as Coca‑Cola and MetLife have expanded operations in Nepal, creating jobs and contributing to the country’s export of $1 billion in information technology products in 2025. The government aims to increase that figure to $20 billion over the next decade.
Challenges and the Role of Youth
Despite the optimism, Nepal faces significant hurdles. Approximately 1,500 young workers leave the country daily for foreign employment, and agriculture—still the dominant sector—offers wages that are 67 % below the national average. The new Prime Minister, Balen Shah, who came to power after a wave of Gen Z protests, has pledged to create 1.2 million jobs and to encourage private‑sector partnerships.
In August, catastrophic flash floods caused by a collapsed glacier killed 1,300 people and left more than 5,000 missing, with damages exceeding $2.56 billion. The government’s slow response drew criticism, but foreign aid—over $5 million from the U.S. State Department and contributions from tech firms like Nvidia—helped fill the gaps.
Basnyet emphasizes that while the absence of USAID is felt, Nepal’s future lies in mobilizing domestic capital, engaging the diaspora, and fostering public‑private collaboration. “We need to use our own public resources better, mobilize much more domestic capital, and draw more deliberately on business, the diaspora, and philanthropy,” she said.
In short, Nepal is navigating a transition from aid dependency to a self‑sustaining, tech‑driven economy, driven by a youthful population and a growing private sector. The country’s resilience and adaptability will determine whether it can turn this challenge into an opportunity for long‑term prosperity.
Key facts
- USAID cut $329 million in aid, causing 30,000 job losses
- Private sector and tech firms are stepping in to fill the gap
- Hydropower potential could reach 100,000 MW
- Youth bulge fuels innovation and labor supply
- New government aims to create 1.2 million jobs
- Disaster response highlighted need for public‑private partnership
Why it matters
The shift away from U.S. aid forces Nepal to innovate and build a self‑sufficient economy, showcasing how emerging markets can leverage youth, technology, and natural resources to drive development.
Frequently asked questions
What caused the $329 million cut in Nepal?
The U.S. Department of Government Efficiency, led by Elon Musk, eliminated USAID, which had been providing aid to Nepal for decades.
How is Nepal planning to replace the lost aid?
Through private‑sector initiatives, tech entrepreneurship, and partnerships with U.S. companies and the U.S. Embassy.
What is the potential of Nepal’s hydropower?
Over 100,000 MW could be tapped, but only about 5,000 MW are currently in use.
Sources
- [1] fortune.com — originally reported as “Elon Musk’s DOGE swiped $329 million in humanitarian funding from Nepal, leaving a Gen Z tech revolution to transform the budding country’s economy”
