Publication date
2008Keyword
Aid; ConcessionalityPeer-Reviewed
Yes
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The method used by Development Assistance Committee countries for measuring the concessionality of aid loans has remained unchanged for nearly 20 years. It was designed to measure the net cost of aid to donors not the net benefit to recipients. The discount rate used takes no account of changes in the value of the currency of the loan or of changes in prices for goods traded by recipient countries. Furthermore, it does not consider the implications of tying of aid or of policy conditionality. This paper suggests an alternative measure that shows the real net benefit of aid finance to recipients. It argues that the discount rate used by the Development Assistance Committee is too high and that changes in the value of the currency in which a loan is taken out can be important. Nevertheless, real rates of interest for developing countries remain surprisingly high despite low nominal rates due to falling prices of traded goods. This finding has implications for the future real cost of debt service to recipients.Version
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Potts D and Chung WY (2008) How Concessional is Aid Lending? Journal of Development Studies. 44(7): 1023-1036.Link to Version of Record
https://doi.org/10.1080/00220380802150797Type
Articleae974a485f413a2113503eed53cd6c53
https://doi.org/10.1080/00220380802150797