Cancelling of poor-country debt does not mean that the best way to give aid is through grants only. Aid through loans may often prove superior, provided that it maintains debt sustainability. A new scheme for soft loans is suggested, with higher interest rates and cancellation provisions if bad...

Suppose a DAC donor earmarks $1 billion of taxpayers’ money for official development assistance (ODA). The donor may use two instruments as an outright grant or in combination with a market loan to produce a concessional loan of $2 billion with a percentage grant element of 50 per cent. Many...