One of the particular features of poor countries’ economies is their volatility, due mostly
to their dependence on commodities. The paper shows that this volatility is a prime factor
behind the debt crises of the poorest countries. It advocates the adoption by donors of a new
lending instrument: the countercyclical loan (CCL). The key idea is to reduce the grace period of
a typical concessional loan, from 10 to 5 years, and to keep the remaining grace periods as an
asset that the country can draw upon, when a bad shock occurs. If no such bad shocks happen, or
infrequently enough, the “floating grace” is redeemed to the country at the end of the loan as a
repayment in advance without penalties.
Lending to the Poorest Countries
A New Counter-Cyclical Debt Instrument
OECD Development Centre Working Papers
