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On measuring loan concessionality in Official Development Assistance

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  • David Roodman

Abstract

The definition of Official Development Assistance (ODA), stewarded by the Development Assistance Committee (DAC), just experienced its largest crisis since the early 1970s. Historically, ODA assessed the subsidy element of aid loans using a discount rate of 10 per cent. Low borrowing interest rates for donor governments enabled them to lend at rates low enough to qualify as ODA, yet high enough to turn a profit. This ignited controversy. In 2014, ODA’s treatment of loans was officially overhauled—for the better, in the sense of aligning the ODA ‘reward’ for a loan to its value. A third way would be better still. The DAC and researchers could improve matters by taking discount rates from the Export Credit Arrangement than from the IMF; and to forgo discounting for default risk, except for innovative loans whose terms bind the lender to share country risk. This article computes and shares several ODA variants.

Suggested Citation

  • David Roodman, 2015. "On measuring loan concessionality in Official Development Assistance," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 31(3-4), pages 396-419.
    • Handle: RePEc:oup:oxford:v:31:y:2015:i:3-4:p:396-419.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grv027
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