Question 3 ODA (17 marks)

Country A has decided to give an export credit loan to country B. The par value is $95 million, to be amortized over 10 years by 60 bi-monthly payments (i.e., every two months), after a grace period of 9 years during which only interest would be paid bi-monthly (i.e., every two months). The stated annual interest rate is 6.0%.

In order to qualify as ODA, an export credit loan must have a grant element of at least 25%, calculated using a stated annual interest rate of 10%.

Does this loan qualify as official development assistance (ODA)?

What is the maximum interest rate that Country A could charge, and still have the loan qualify as ODA? (If you require to increase the rate use 7%, to decrease the rate use 5%)