By Staff Writer
WASHINGTON, May 30, CMC -The Citizenship by Investment Programmes (CBI) have long been recognized in their importance to fiscal revenue in the Eastern Caribbean Currency Union (ECCU) but there is less clarity over their broader economic contributions, according to a paper released by the International Monetary Fund (IMF) on Friday.
The ECCU groups the islands of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts-Nevis, St. Lucia, and St. Vincent and the Grenadines. However, Anguilla, Montserrat, and St. Vincent and the Grenadines do not operate CBI programmes through which foreign investors are granted citizenship of the country in return for making a substantial investment in its socio-economic development.
The document notes that over the past decade, the CBI programmes have become an important source of government revenue in the ECCU. It said that although globally a niche market, the scale of the investment flows can be substantial to small island state governments. For the five ECCU members with existing programmes, government CBI revenue averaged 6.5 per cent of gross domestic product (GDP) between 2019 and 2023 and increased to nearly a third of total non-grant revenue in 2023.
It said that these funds have primarily financed public capital investment, but the level of budget dependency on CBI revenue varies considerably among the individual members.
The document notes that limited transparency obscures the total scale of ECCU CBI investments. CBI investment options include donations to government-owned funds and direct investment in government approved projects, typically in tourism real estate managed by an external developer.
“While the ECCU members generally disclose aggregate annual government donation amounts, information on direct project investments is largely lacking. Only three members periodically publish CBI application data, with only Grenada releasing high-frequency figures that include granular breakdowns and direct investment volumes. This limited transparency, albeit common in the industry beyond the ECCU, hinders accurate assessment of the programme’s economic contributions.”
In the document, titled “ECCU CBI Programmes: Regional Significance and Risks,” the author Janne Hukka, wrote that while they have significant potential economic benefits, CBI programmes are subject to risks for the host countries.
“The determinants of CBI demand, typically associated with international mobility, are varied and difficult to predict. Where this uncertainty is not carefully managed, abrupt demand shortfalls can expose fiscal and macro-stability vulnerabilities.”
The document noted that for example, in St. Kitts and Nevis, the recent sharp decline in CBI revenue widened the 2024 fiscal deficit to 11 per cent of GDP. The programmes also expose host countries to AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) and financial integrity risks, where lapses in investor due diligence could have consequences to correspondent banking relationships. The implied risk to host citizens’ international mobility, should they materialize, can also involve economic costs.
“Recent heightened international scrutiny has prompted greater regional coordination. ECCU CBI-5 countries have undertaken substantial regulatory reforms to strengthen the programmes’ risk management and integrity in the context of an ongoing US-Caribbean roundtable process.
The document notes that a March 2024 Memorandum of Agreement (MoA) standardised the minimum investment amount and launched ongoing work to establish a regional CBI regulator. Some programmes are also investigating past irregularities, resulting in a few cases in revoked investor passports
In the paper Hukka wrote that the outlook for CBI inflows is highly uncertain and that the recent international scrutiny and member actions have dampened new investor demand in some members.
“However, the longer-term impact of CBI programme reforms remains unclear. Unwinding of processing backlogs and a temporary early-2024 demand increase ahead of the MoA price increases have for now mitigated the impact on recent ECCU-wide investment inflows.”
The paper notes that collaborative efforts to strengthen CBI programme design and resource use would support the management of downside risks.
“A sustained abrupt decline in CBI inflows would substantially weigh on ECCU members’ fiscal sustainability, tourism investment, and union-wide foreign exchange inflows. The authorities have undertaken and initiated important safeguarding processes to strengthen investor screening, national AML/CFT frameworks, and mitigation of security risks in collaboration with third-party stakeholders. Although these measures cannot fully mitigate CBI demand risks beyond the ECCU economies’ control, these can be more effectively managed.”
It said that the key measures include, reducing budget-reliance on CBI revenues as clearer provisions for CBI revenues’ budget use would also help manage their potential volatility and facilitate medium-term fiscal and public investment planning.
The paper also notes that the planned regional CBI regulator is an important opportunity to establish common data transparency standards on all CBI inflows and their use.
“Beyond supporting the programmes’ financial integrity, greater accountability can help the development of regional best practices on CBI investment option design to optimize the programs’ economic benefits.
“This could be further informed by standardized ex-post CBI project assessments on economic outcomes. Greater data transparency would also support union-wide monitoring of the CBI flows, better identification of these investments’ systemic importance, and the development of contingency plans.”
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