On measuring loan concessionality in Official Development Assistance

roodman, david;

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.