On the pitfalls of measuring aid

This paper makes a thorough assessment of the methodology used to measure aid in general, and Official Development Assistance (ODA) in particular. The methodology is applied to some typical aid instruments, such as tied technical assistance, concessional loans and debt forgiveness.

Paper illustrates that alternative aid measures can make a considerable difference on how we look on aid volumes and trends. The main recommendation is that DAC should only record as ODA that part of debt relief that would have been effectively paid back. In this way its statistics will be in line with the opportunity cost approach to the donor and the acquisition value approach to the beneficiary. This raises a serious technical challenge, for there is no way of observing the counterfactual, namely what would have been paid in the absence of debt forgiveness. Useful information can be however derived from the study of secondary markets for debt paper, from the trends in defaulting on public debt, or from debt sustainability analysis undertaken by the Bretton Woods institutions for the countries in question. On the basis of such information the member countries of DAC ought to be able to decide on a 'discount' to be applied to the nominal value of a debt forgiveness to bring the calculation in line with the opportunity cost to the donors.

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