Financing for sustainable development

Modernising the measurement of concessional sovereign loans

 

Concessional loans are an increasingly common form of ODA, notably thanks to a low-interest rate environment. Differences in how these loans were scored as ODA brought about a need to clarify its definition and measurement. The concept of ODA was developed by the OECD Development Assistance Committee (DAC) in 1969, yet until recently the definition of what made a loan “concessional in character” – which in turn determines the extent to which a loan can be reported as ODA – was open to interpretation. Because this resulted in inconsistent reporting across DAC members, it was agreed that clarification was needed.  


At their High Level Meeting in December 2014, DAC members reached a historic agreement to modernise the measurement of development finance, including the definition of ODA and make important improvements in the system to guarantee a fairer picture of provider effort. Whereas in the past the face value of both grants and loans was counted as ODA, they agreed that only grants and the “grant portion” of concessional loans would be considered. This provides a more realistic comparison of loans and grants, and encourages the use of grants and highly concessional loans as these will continue to play a key role in mobilising resources to support the Sustainable Development Goals (SDGs). The new measurement system promotes improved transparency and accountability, while incentivising more and better targeting of resources.


Why do these changes matter?
 This new statistical framework measures ODA loans more accurately and credibly which ensures comparability of data across providers. It incentivises more and better allocation of concessional resources to implement the SDGs. It also promotes greater transparency and heightened accountability, helping to ensure that ODA goes where it is most needed and has the greatest development impact.


When will these changes take effect?
 For the time being, ODA will be reported using both the new grant equivalent and previous cash flow-based systems to allow for full data on actual disbursements and repayments of loans collected and published. This means that full transparency regarding the impact of changes on ODA volumes will be maintained. The new system will become the standard for reporting from 2018 on (for which ODA reporting will take place in early 2019).

 

Further reading on concessional sovereign loans related themes