Shutting down development agencies such as the MCC will force Mongolia to rely more on Russia and China for funding.
While the United States has previously served as Mongolia’s “north star” guiding the country symbolically toward democracy, the future of U.S. support remains uncertain. The dismantlement of U.S. development agencies undermines Mongolia’s ability to strive for good governance, build durable infrastructure for Mongolians, and align itself with democratic partners. 
In the past seven years, U.S. assistance to Mongolia has remained fairly consistent, with approximately $13.25 million requested in the fiscal year 2025 foreign operations budget. One of the largest current direct U.S. investments into Mongolia is the five-year, $350 million Millennium Challenge Corporation (MCC) compact to provide clean, sustainable water infrastructure for Ulaanbaatar. But this too is on the verge of being cut in the midst of the Trump administration’s dismemberment of U.S. development aid. 
The MCC is an independent government agency established in 2004 under the Bush administration. The MCC provided targeted investments in developing countries through five-year “compacts” intended to promote economic growth, reduce poverty, and strengthen government institutions. Its model is based on local oversight and implementation, and all compacts are implemented with a team of local employees with just a few U.S.-based staff. The MCC has provided more than $17 billion in grants, and is one of the best-regarded U.S. development agencies in terms of its transparent finances and long-term effectiveness.  
The Mongolia Water Compact with the MCC was signed in 2018 and entered into force in March 2021. In addition to the $350 million grant provided by the U.S. government, the government of Mongolia promised to contribute up to $111.8 million to support the investment, one of the largest partner country contributions in the MCC’s history. All told, then, the project would invest a total of $461.8 million into Ulaanbaatar’s water supply. This is a critical, necessary investment in Mongolia’s infrastructure given that the capital city has nearly tripled in size in less than three decades and demand for water will likely exceed supply. 
The MCC compact intended to increase Ulaanbaatar’s water supply by 80 percent through three key investment activities: constructing new groundwater wells with an advanced water purification plant; wastewater recycling to increase the quantity of freshwater available for household consumption; and a focus on water sector sustainability via policy reforms, capacity building, and technical assistance. All of these steps will ultimately improve access to and the quality of Ulaanbaatar’s long-term water supply – if the contract is upheld. 
While there were initial concerns that the MCC would be dismantled alongside the U.S. Agency for International Development (USAID) in late January, it was originally allowed to continue its work, albeit under tense circumstances amid sharp cuts demanded by the Department of Government Efficiency (DOGE, which despite its name is not an official government department). During a meeting on April 19, however, MCC staff were told by DOGE staff members that all of the agency’s programs would be immediately terminated and staff numbers minimized. 
Amid the rapid closures, several programs were given extensions to wrap up in-country programming. The Mongolia Water Compact was allowed three months to end programming. However, this means that the compact would end in July 2025, well short of its intended end date in March 2026. According to the MCC’s website, nearly $215 million of the $350 million grant has already been spent.
Mongolian government officials at the Embassy of Mongolia in the United States said that “if the project is not completed by the U.S., the Mongolian government will not have enough funds to complete the project on their own and will need to seek out other partners.” 
Given the limitations and pressures on many donor governments – including Japan, South Korea, and the European Union – to cut back on development funding, the Mongolian officials implied that they would feel pressured to reach out to China or Russia for additional financial assistance to complete the project. 
Mongolia’s history with the MCC has not always been smooth. The first MCC compact, a five-year $285 million investment, was a mixed affair. It was signed between the U.S. and Mongolia in 2007, with a stated focus on reducing poverty and promoting sustainable growth through four projects. The largest of these projects was intended to be a $188 million rail project to upgrade Mongolia’s only north-south railway. 
However, according to Dr. Alicia Campi in her book “Mongolia’s Foreign Policy,” a lack of coordination with Russian officials on the board of the Ulaanbaatar Railway resulted in the veto of the rail project two years after the compact had been signed, leaving MCC staff scrambling to reorganize the contents of the compact. While the compact was ultimately completed within its five-year framework in 2013, with estimated benefits to over 2 million Mongolians over the course of 20 years (according to its Closed Compact Report), the intended impacts of advancing Mongolia-U.S. business ties and investments did not transpire in the way envisioned by the compact. 
Mongolia is already struggling to uphold its governance standards amid a series of public protests against ongoing corruption by government leadership, as covered by The Diplomat. According to an MCC employee covering the Water Compact, “Mongolia has not successfully passed the MCC’s corruption indicator for the past three years on the project.” Despite these governance failures, the MCC was committed to finalizing the project and Mongolia maintained an overall passing scorecard, allowing it to continue work on the compact. 
While the general Mongolian public is not familiar with the Millennium Challenge Corporation or its work, projects like the Water Compact have an indelible impact on the quality of life for Mongolians. By investing in the future of Ulaanbaatar, the city at the heart of Mongolia will increase its potential to expand and grow, creating greater opportunities for the entire country. Shutting down development agencies such as the MCC will instead undermine Mongolian relations with the U.S. as a whole, driving Mongolia closer to Russia and China if further “third neighbor” support fails to materialize. We’ve seen this in the case of Nepal, which also had a much-needed MCC compact scrapped amid the DOGE cuts.
However, Mongolian Embassy officials were surprisingly hopeful about the future of the Mongolia Water Compact, noting that they “were in talks with counterparts” at the U.S. Department of State to complete the compact, although U.S. Secretary of State Marco Rubio “has the last word.” 
In his own words during a recent Senate Appropriations Committee hearing on the fiscal year 26 Department of State budget request, Rubio testified that the Millennium Challenge grant is “outside my direct control of purview…and there will be efforts at reform…and potentially even expansion in one of them, although that won’t be my decision solely.” 
There are some reassuring developments. As of this writing, the MCC website continues to be functional with all content present, unlike USAID’s website, and a procurement notice for a reclaimed wastewater consultant for MCC’s Mongolia Water Compact was released on May 16 – although that too could be terminated at any moment. Given the intense back and forth on development aid under the Trump administration, any agency working in this space is at risk, and Mongolia is certainly not the only country to be cut off from promised U.S. investments.
By Monica Weller

Published Date:2025-05-30