WASHINGTON, CMC -The Citizenship by Investment Programmes (CBI) have long been recognized for their importance to fiscal revenue in the Eastern Caribbean Currency Union (ECCU). Still, there is less clarity over their broader economic contributions, according to a paper released by the International Monetary Fund (IMF) on Friday.
The ECCU comprises the islands of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. However, Anguilla, Montserrat, St. Vincent, and the Grenadines do not operate CBI programs 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 programs have become an essential source of government revenue in the ECCU. It stated that, although globally a niche market, the scale of investment flows can be substantial for small island state governments. For the five ECCU members with existing programs, government CBI revenue averaged 6.5 percent of gross domestic product (GDP) between 2019 and 2023. It increased to nearly a third of total non-grant revenue in 2023.
It stated that these funds have primarily financed public capital investment; however, the level of budget dependency on CBI revenue varies considerably among 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 Grenada being the only one to release 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 program’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 programs 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, for example, that in St. Kitts and Nevis, the recent sharp decline in CBI revenue has widened the 2024 fiscal deficit to 11 percent of GDP. The programs 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 for 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 programs’ 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) standardized the minimum investment amount and launched ongoing work to establish a regional CBI regulator. Some programs are also investigating past irregularities, resulting in a few cases of 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 program reforms remains unclear. The 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 program 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 stated that the key measures include reducing budget reliance on CBI revenues, as more explicit provisions for the use of CBI revenues’ budget 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 presents a vital opportunity to establish common data transparency standards for all CBI inflows and their utilization.
“Beyond supporting the programs’ financial integrity, greater accountability can help the development of regional best practices on CBI investment option design to optimize the programs’ economic benefits.
“Standardized ex-post CBI project assessments could further inform this 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.”
and then  have long been recognized for their importance to fiscal revenue in the Eastern Caribbean Currency){kind=link}