USAID shutdown triggers 40pc drop in Nepal’s star hotel business

KATHMANDU: The USAID shutdown in Nepal has triggered a seismic 40% drop in business for star hotels and cafes, slashing a vital revenue stream tied to NGO and INGO staffers who once fueled Nepal’s luxury hospitality sector. From five-star giants like Hilton Kathmandu and Marriott Hotel Kathmandu to boutique cafes in Jhamsikhel, the closure—finalized in late January under a US aid rollback—has gutted occupancy rates and profits across Kathmandu Valley and beyond, leaving operators scrambling to adapt amid a hospitality crisis in Nepal.

The U.S. government’s January 20 executive order froze foreign assistance for a 90-day review, escalating into permanent cuts that axed USAID’s Nepal operations. This severed NPR 46.12 billion ($329.4 million USD) in funding for 34 projects, dismantling a $659 million five-year aid pact from 2022. Over 300 NGOs and INGOs—key drivers of spending in Nepal’s high-end hotels and cafes—lost their lifeline, sending national and international staff packing. “There were customers who spend,” lamented a Kathmandu hotelier, recalling the USAID-linked regulars whose budgets once propped up luxury tourism in Nepal.

Star hotels Kathmandu are hemorrhaging. International chains—Hilton Kathmandu, Marriott Hotel Kathmandu, Dusit Princess Kathmandu, Radisson Hotel Kathmandu—and heritage spots like Baber Mahal Revisited report a hospitality crisis Nepal hasn’t seen in years.

“Our room occupation and overall business has been down almost 50% in nowadays,” said a senior manager at Kathmandu Marriott Hotel, speaking anonymously due to corporate policy. The Marriott, already stung by Hilton Kathmandu’s 2024 launch siphoning clients, took a brutal hit from the USAID shutdown Nepal.

“After closer of the USAID, we have lost most of the high profile persons from the USA and around the world, who are working in the USAID and its funding organization,” he said. With no recovery in sight, he warned, “If the situation will remain the same, we must rethink about the business model.” The hotel’s SEO-targeted pivot? High-end Indian and Chinese tourists, a shift marketing teams are racing to optimize.

The USAID shutdown Nepal ripple effect stretches outside Kathmandu Valley. Resorts in Pokhara, Chitwan, and Lumbini—once bustling with USAID staff and NGO retreats—mirror the capital’s 40% plunge. “Our bookings are down 40% since January,” said a resort owner at Pokhara, his luxury tourism Nepal business now a shadow of its former self.

Cafes, too, are buckling. In Jhamsikhel, a Kathmandu hotspot, a café operator pinned his woes on the aid cut. “This is the ripple effect of the shot down of the USAID in Nepal,” he said, opting for anonymity as he mulls closure. “If the situation will remain the same, I am unable to operate my café and need to think for the change the location or shot down the café as this much expensive operation cost.” Once thriving on NGO spending Nepal, his venue now battles soaring overheads with a dwindled clientele.

The data is grim. Nepal’s star hotels and cafes leaned heavily on institutional clients—diplomats, consultants, and aid workers tied to USAID’s ecosystem. Funding health, education, and infrastructure via NGOs and INGOs, USAID drove a steady flow of high rollers into luxury hospitality Nepal. Industry sources estimate these clients fueled 30-50% of revenue at top venues—now a void no SEO campaign can quickly fill.

Nepal’s economy offers scant relief. Nepal Rastra Bank’s latest figures show exports up 46.5% to NPR 127.20 billion ($950 million USD) in seven months of fiscal year 2081/82, but imports—a demand indicator—grew just 10%, reflecting a consumer base too squeezed to buoy luxury sectors.

Tourism, at 8% of Nepal’s $40 billion GDP, hinges on such spending, yet the USAID shutdown Nepal threatens its backbone. “Indian and Chinese tourists are our top priority now, but they don’t replace the steady NGO crowd,” the Marriott manager said, banking on SEO-driven marketing to lure new high-spenders.

Operators face a stark choice. The Jhamsikhel café owner’s dilemma—relocate or shutter—echoes across Kathmandu Valley and beyond. Star hotels Kathmandu, saddled with high costs, mull staff cuts or rebranding for budget travelers. “We can’t sustain this long,” the Pokhara resort owner said.

With USAID’s Nepal chapter officially dissolved as of February 28, per a U.S. Embassy notice, the donor-driven cash flow is gone for good. Nepal’s luxury tourism sector, once a magnet for NGO spending Nepal, now scrambles to rewrite its playbook in a market on the brink.