What this covers:

• what grants, concessional loans and private sector instruments are
• the conditions each meets to qualify as ODA
• how each is counted in the headline ODA grant-equivalent measure
• the PSI transition arrangements
• the policy debate on how loans and PSI are measured

Contents

• When to use
• Grants
• Concessional loans
• Private sector instruments (PSI)
• The policy debate
• Pitfalls
• What makes a result verifiable

When to use

This reference informs questions about:

• how grants, concessional loans and PSI differ
• whether a loan, equity investment, guarantee, or other instrument counts as ODA
• comparisons of ODA across financial instruments
• how each instrument is counted in the grant-equivalent measure
• PSI, DFI finance, blended finance, additionality, or mobilised private finance in relation to ODA
• why ODA figures changed after 2018 or after 2023

Grants

A grant is a transfer of resources, in cash or in kind, that requires no repayment of principal. Its grant element is therefore 100%.

A grant counts as ODA when it is:

• provided by an official agency, including state or local governments or their executive agencies
• allocated to a country or territory on the DAC List of ODA Recipients, or to an eligible multilateral institution
• administered with the promotion of the economic development and welfare of developing countries as its main objective

The grant-equivalent measure counts the full eligible grant amount, with no deduction for future repayments.

Concessional loans

A concessional loan is repayable finance on softer-than-market terms, such as a below-market interest rate, a long maturity, a grace period, or a combination of these. The borrower repays the principal, and usually interest, over time.

For bilateral loans to the official sector, ODA eligibility rests on income-differentiated grant-element thresholds. The grant element is a net present value calculation that discounts expected future repayments at an income-group-specific rate.

Loans below the relevant threshold are classified as Other Official Flows (OOF).

The grant equivalent of a loan is its annual disbursements multiplied by its grant element. The grant element is fixed at commitment and is not recalculated at disbursement. A later rescheduling is recorded as a separate debt-relief entry.

The DAC adopted grant-equivalent accounting for loans in 2014 and applied it to headline ODA from 2018 data. Before 2018, headline ODA used cash-flow accounting (net disbursements), so pre-2018 loan figures are not directly comparable with grant-equivalent figures. The OECD publishes both series for time-series comparison, and grant-equivalent data also exists for 2015–2017. For a loan-heavy donor, grant equivalents are well below gross disbursements because only the concessional portion counts.

Private sector instruments (PSI)

PSI are official resources provided to or through private sector entities to promote economic development and welfare in developing countries. Development finance institutions (DFIs) or similar official vehicles typically extend them. They include loans to the private sector, guarantees, equities, mezzanine finance, and reimbursable grants.

A PSI operation counts as ODA when it is:

• allocated to a country or territory on the DAC List of ODA Recipients
• administered with the promotion of the economic development and welfare of developing countries as its main objective
• additional, as defined below

Additionality

Additionality is a core ODA-eligibility criterion for PSI. An operation qualifies when it shows financial or value additionality, together with development additionality.

• Financial additionality: The official finance provides funding that commercial sources would not, in amount, risk, currency, maturity, or other financial conditions. This includes investment in capital-constrained markets, high-risk environments, or LDCs and LICs where commercial finance is unavailable, as well as anchor investments and roles that help a project reach financial close.
• Value additionality: The official provider contributes non-financial value that commercial providers would not, such as board participation, capacity building, and advisory services.
• Development additionality: The operation has a clear development purpose and is expected to produce outcomes that would not be achieved to the same extent without it.

The 2023 DAC agreement strengthened the additionality reporting framework. From 2024 reporting on 2023 ODA, members classify and report the type of additionality for each PSI activity.

How PSI is counted

There are two accounting routes:

• Institutional approach: Capital increases to an eligible PSI vehicle are multiplied by an ODA coefficient based on the vehicle's share of ODA-eligible activities. ODA is recorded when the vehicle's capital increases, not when individual investments are made, so it may be recorded before the underlying activities take place. This makes year-on-year comparison of PSI ODA less straightforward than for grants or loans.
• Instrument approach: A grant equivalent is calculated for each PSI activity (a specific loan, equity investment, or guarantee), reflecting the financial "gift" in the instrument and using instrument-specific discount rates set by the DAC.

The approach is chosen per PSI vehicle, and a vehicle can switch approach under a set mechanism. Data on the other approach is reported as a memorandum item.

Transition arrangements

The revised PSI methods were approved in batches. Batch 1 (private-sector loans, credit guarantees, and vehicle assessment) was approved on 5 April 2023, and batches 2 and 3 on 31 October 2023. They took effect from 2024 reporting on 2023 ODA. Members unable to apply them could use an optional transition period, during which PSI stayed on the provisional cash-flow basis. The DAC Reporting Directives (DCD/DAC(2024)40/FINAL) set the maximum period by instrument:

• Up to one year, applied by 2025 reporting on 2024 ODA at the latest: Private-sector loans, guarantees, subordinated loans, and loan-type reimbursable grants
• Up to two years, applied by 2026 reporting on 2025 ODA at the latest: Equities, preferred equities, and reflow-based reimbursable grants. A member needing longer for equities notifies the OECD Secretariat.

PSI figures before 2023 may reflect cash-flow accounting and are not comparable with post-transition grant-equivalent figures. Comparability across years depends on which method and transition arrangement applied to each year.

The policy debate

Loan measurement

Civil society organisations and researchers criticise the income-differentiated discount rates (6% to 9%) used to calculate grant elements. They argue that the rates exceed prevailing market rates, which inflates the calculated grant element and so overstates the ODA value of loans. Critics say this gives donors an incentive to lend rather than give grants, particularly for climate finance, where developing countries may take on debt to address problems they did not cause. The OECD DAC has acknowledged the debate, and the discount rates remain in place. The debate bears on any assessment of the ODA value of a donor's loan portfolio.

The DAC's rationale is that the rates add a risk premium that rises as the recipient's income falls, and that grant-equivalent accounting rewards more concessional lending to the poorest countries, an aim of the 2014 reform.

PSI measurement

The inclusion of PSI in ODA has been contested since the 2016 DAC High Level Meeting agreed principles for counting it. Provisional methods were adopted later and applied from 2018 ODA. The main concerns are whether additionality is demonstrated in practice, whether the institutional approach records ODA before development outcomes are achieved, and whether transparency is sufficient to assess impact. The 2023 DAC agreement strengthened transparency and accountability requirements, including mandatory ODA-eligibility assessments of PSI vehicles and biennial review reports. The first biennial review is expected in 2026.

Pitfalls

• Comparing a post-2018 grant-equivalent loan figure with a pre-2018 net disbursement figure without flagging the break is a significant analytical error.
• PSI ODA measures the official resources provided through PSI vehicles and excludes the private finance those operations mobilise. Mobilised private finance is tracked separately in the OECD's broader development finance statistics. The two measure different things and are not additive.
• Some DFI operations fail the additionality and development purpose criteria and are classified as OOF. Whether a DFI operation counts in ODA depends on the ODA-eligibility assessment of the specific vehicle.
• ODA figures for loans and PSI reflect DAC methodology, not an independent assessment of development impact.

What makes a result verifiable

A result is verifiable when it names the instrument type and whether it meets the ODA eligibility criteria, states how its value is counted (full value for grants, grant element times disbursements for loans, institutional or instrument approach for PSI), states which series loan figures use and flags the 2018 break, and for PSI states the method and transition arrangement that applies to the data.