48 Finance & Development December 2015
Offering
citizenship
in return for
investment is
a win-win for
some small
states
“A
RE you a Global Citizen? Let us
help you become one.” You may
have seen such an advertise-
ment in an in-ight magazine
designed to lure some business class passen-
gers, largely from less-developed economies,
into acquiring a passport that can smooth
their entry at the border of their next desti-
nation. A whole new industry of residence
and citizenship planning has emerged over
the past few years, catering to a small but rap-
idly growing number of wealthy individuals
interested in acquiring the privileges of visa-
free travel or the right to reside across much
of the developed world, in exchange for a sig-
nicant nancial investment.
Judith Gold and Ahmed El-Ashram
A Passport of
CONVENIENCE
A growing phenomenon
e rapid growth of private wealth, especially
in emerging market economies, has led to a
signicant increase in auent people inter-
ested in greater global mobility and fewer
travel obstacles posed by visa restrictions,
which became increasingly burdensome
aer the terrorist attacks of September 11,
2001. is prompted a recent proliferation
of so-called citizenship-by-investment or
economic citizenship programs, which allow
high-net-worth people from developing or
emerging economy countries to legitimately
acquire passports that facilitate international
travel. In exchange, countries administering
such programs receive a signicant nancial
investment in their domestic economy. Also
contributing to the rapid growth of such
programs is the pursuit of political and
economic safe havens, in a deteriorating
geopolitical climate and amid increased
security concerns. Other considerations
include estate and tax planning.
Economic citizenship programs are
administered by a growing number of
small states in the Caribbean and Europe.
Their primary appeal is that they confer
citizenship with minimal to no residency
requirements. Dominica, St. Kitts and Nevis,
and several Pacific island nations have had
such programs for years: the St. Kitts and
Nevis program dates back to 1984. More
recently, a number of new programs have
been introduced or revived, including by
Antigua and Barbuda, Grenada, and Malta,
with St. Lucia the most recent addition to the
list. While some of these programs have been
in place for years, they have only recently
seen a substantial increase in applicants, with
a corresponding surge in capital inflows.
Similarly, economic residency programs
were recently launched across a wide range
of (generally much larger) European coun-
tries, including Bulgaria, France, Hungary,
Ireland, the Netherlands, Portugal, and
Finance & Development December 2015 49
Spain. Almost half of EU member states now have a dedi-
cated immigrant investor route.
Also known as golden visa
programs, these arrangements give investors residency
rights—and access to all 26 Schengen Area countries, which
have agreed to allow free movement of their citizens across
their respective borders—while imposing minimal resi-
dency requirements (see table). Although these programs
differ in that one confers permanent citizenship while the
other provides just a residency permit, they both allow
access to a large number of countries with minimal resi-
dency requirements, in return for a substantial investment
in their economies (see Chart 1).
In contrast, some advanced economies, such as Canada,
the United Kingdom, and the United States, have had immi-
grant investor programs since the late 1980s or early 1990s,
offering a route to citizenship in exchange for specific invest-
ment conditions, with significant residency requirements. In
2014, Canada eliminated its federal immigrant investor pro-
gram, but the provinces of Quebec and Prince Edward Island
continue to run a similar scheme that leads to Canadian citi-
zenship. And the United Kingdom and the United
States continue to run and expand their programs.
The cost and design of the programs vary
across countries, but most involve an up-front
investment, in the public or the private sector,
combined with significant application fees and
an amount to cover due diligence costs. The pro-
grams in the Caribbean allow for either a large
nonrefundable contribution to the treasury or
to a national development fund, which finances
strategic investment in the domestic economy, or
an investment in real estate (which can be resold
after a specified holding period). Other pro-
grams provide the option to invest in a redeem-
able financial instrument, such as government
securities. In Malta, the program requires contri-
butions in all three investment routes.
Economics of citizenship
e inows of funds to countries from these pro-
grams can be substantial, with far-reaching mac-
roeconomic implications for nearly every sector,
particularly for small countries (see Chart 2).
Inows to the public sector alone in St. Kitts and
Nevis, which has the most readily available data,
had grown to nearly 25 percent of GDP as of 2013.
Antigua and Barbuda and Dominica have also ex-
perienced signicant inows. In Portugal, inows
under the country’s golden visa program may ac-
count for as much as 13 percent of estimated gross
foreign direct investment inows for 2014; in
Malta, total expected contributions to the general
government (including the National Development
and Social Fund) from all potential applicants—
which are capped at 1,800—could reach the equiv-
alent of 40 percent of 2014 tax revenues when all
allocated passports are issued.
Gold, corrected 10/26/2015
Chart 1
Pick a country, any country
Among the countries offering citizenship programs, Maltese and
Cypriot passports offer visa-free access to the most countries.
(number of countries)
Source: Henley & Partners Visa Restriction Index 2014.
Note: Ranking reects the number of countries to which the country’s passport offers
visa-free access. The program is not yet launched in St. Lucia.
Malta Cyprus Antigua and St. Kitts St. Lucia Dominica Grenada
Barbuda and Nevis
70
90
110
130
150
170
The price of citizenship
The conditions for acquiring a passport via economic citizenship/residency vary by
country.
Citizenship Programs
Country
Inception
Year
Minimum
Investment
1
Residency
Requirements
2
Citizenship
Qualifying Period
3
Antigua and
Barbuda 2013 US$250,000
5 days within a
5-year period Immediate
Cyprus 2011 €2.5 million No (under revision) Immediate
Dominica 1993 US$100,000 No Immediate
Grenada 2014 US$250,000 No Immediate
Malta 2014 €1.15 million 6 months 1 year
St. Kitts and Nevis 1984 US$250,000 No Immediate
Residency Programs
Australia 2012 $A 5 million 40 days/year 5 years
Bulgaria 2009 €500,000 No 5 years
Canada
4,5
Mid-1980s Can$800,000
730 days within a
5-year period 3 years
Canada—Prince
Edward Island Mid-1980s Can$350,000
730 days within a
5-year period 3 years
Canada—Quebec
5
N.A. Can$800,000
730 days within a
5-year period 3 years
France 2013 €10 million N.A. 5 years
Greece 2013 €250,000 No 7 years
Hungary 2013 €250,000 No 8 years
Ireland 2012 €500,000 No N.A.
Latvia 2010 €35,000 No 10 years
New Zealand N.A. $NZ 1.5 million 146 days/year 5 years
Portugal 2012 €500,000 7 days/year 6 years
Singapore N.A. S$2.5 million No 2 years
Spain 2013 €500,000 No 10 years
Switzerland N.A.
Sw F 250,000/
year
No 12 years
United Kingdom 1994 £1 million 185 days/year 6 years
United States 1990 US$500,000 180 days/year 7 years
Sources: Arton Capital; Henley & Partners; national authorities; UK Migration Advisory Committee; and other immigration
services providers.
1
Alternative investment options may be eligible.
2
Explicit minimum residency requirements under immigrant investor program; residency criteria to qualify for citizenship
may differ.
3
Including the qualification period for permanent residency under residency programs.
4
Program suspended since February 2014.
5
Although not specific to the immigrant investor program, retaining permanent residency requires physical presence of 730
days within a five-year period.
50 Finance & Development December 2015
The macroeconomic impact of economic citizenship pro-
grams depends on the design of the program, as well as the
magnitude of the inflows and their management. The fore-
most impact is on the real sector, where inflows can bolster
economic momentum. Programs with popular real estate
options generate an inflow similar to that of foreign direct
investment, boosting employment and growth. In St. Kitts and
Nevis, inflows into the real estate sector are fueling a construc-
tion boom, which has pulled the economy out of a four-year
recession—to a growth rate of 6 percent in 2013 and 2014, one
of the highest in the Western Hemisphere. The rapid increase
in golden visa residency permits in Portugal, which has issued
more than 2,500 visas since the program’s inception in October
2012, has reportedly bolstered the property market, leading to
a steep rise in the price of luxury real estate.
However, a large and too rapid influx of investment in the
real estate sector could lead to rising wages and ballooning
asset prices, with negative repercussions on the rest of the
economy. And the rapid expansion in construction could
erode the quality of new properties and eventually under-
mine the tourism sector, since most of the developments
include (or are repurposed for) tourist accommodations.
Moreover, inflows under these programs are volatile
and particularly vulnerable to sudden stops, exacerbating
small countries’ macroeconomic vulnerabilities. A change
in the visa policy of an advanced economy could suddenly
diminish the appeal of these programs. It’s conceivable that
advanced economies could act together to suspend their
operations, triggering a sudden stop. Increasing competi-
tion from similar programs in other countries or a decline
in demand from source countries could also rapidly reduce
the number of applicants.
If they are saved rather than spent, inflows from these pro-
grams can substantially improve countries’ fiscal performance.
In St. Kitts and Nevis, budgetary revenues from the program
boosted the overall fiscal balance to more than 12 percent of
GDP in 2013, one of the highest in the world. But these inflows
can also present significant fiscal management challenges,
similar to those caused by windfall revenues from natural
resources (see “Sharing the Wealth” in the December 2014
F&D). Such revenues can lead to pressure for increased gov-
ernment spending, including higher public sector wages, even
though the underlying revenues may be volatile and difficult
to forecast. The resulting increase in dependence on these
revenues could lead to sharp fiscal adjustments or an acute
increase in debt, if or when the inflows diminish.
A country’s external accounts are also significantly
affected by large program inflows. The budgetary revenues
can improve the country’s current account deficit, and sub-
stantially so if they are saved, and the capital account can be
strengthened by transfers to development funds and higher
foreign direct investment. But increased domestic spending
as a result of higher government expenditures and investment
will substantially boost imports, particularly in small open
economies, offsetting some of the initial improvement in the
balance of payments. Risks to the exchange rate and foreign
currency reserves are also magnified as these inflows become a
major source of external financing. In addition, rising inflation
from economic overheating can cause the real exchange rate
to appreciate, lowering the country’s external competitiveness
over the long run.
Large program inflows can also boost bank liquidity,
especially if the bulk of the budgetary receipts are saved in
the banking system. At the same time, they can threaten
financial stability in small states. While some increase in
liquidity may be welcome, large accumulation of program-
related deposits presents new financial risks, reflecting
small banking systems’ limited and undiversified options
for credit expansion. Risks to financial stability may be
magnified if banks face excessive exposure to construction
and real estate sectors already propped up by investments
from the economic citizenship program. In that case, a
sharp decline in program inflows could prompt a correction
in real estate prices, with negative implications for banks’
assets, particularly if supervision is weak.
Another challenge is the risk to governance and sustainability.
Cross-border security risks associated with the acquisition of a
second passport are likely to be the main concern of advanced
economies. Reputational risks are also magnified: weak gov-
ernance in one country could easily spill over to others, since
advanced economies are less likely to differentiate between citi-
zenship programs. In addition, poor or opaque administration
of programs and their associated inflows—including inadequate
disclosure of the number of passports issued, revenues collected,
and mechanism governing the use of generated inflows—could
prompt strong public and political resistance, complicating, or
even terminating, these programs. Programs have indeed been
shut down in the past as a result both of security concerns and
domestic governance issues.
Weeding out the risks
Country ocials can implement policies to reduce and con-
tain the risks small economies face from large economic citi-
zenship program inows while allowing their economies to
capitalize on the possible benets.
Gold, corrected 10/26/2015
Chart 2
A big boost
St. Kitts and Nevis’s economic citizenship program accounts for
signicant inows.
(percent of GDP)
Sources: National authorities; and IMF staff estimates.
2005 06 07 08 09 10 11 12 13 14
–10
–5
0
5
10
15
20
25
Contributions to national development fund
Contributions to government
Fiscal balance
Finance & Development December 2015 51
Prudent management of government spending has an
important role in containing the impact of these inflows on
the real economy, but it should be accompanied by sufficient
oversight and regulations to pace inflows, particularly to the
private sector. For example, annual caps on the number of
applications or the size of investments would limit the influx
of investments to a country’s construction sector. A regula-
tory framework for the real estate market would reduce risk
and limit potentially damaging effects of price distortions
and segmentation in the domestic property market as a result
of investment minimums imposed by these programs.
Changing key parameters of the program can also be an
effective way to redirect investments to the public sector,
allowing countries to save the resources for future use and to
invest in infrastructure.
Saving is a virtue
Large fiscal revenue windfalls tend to trigger unsustainable
expansions in expenditure that leave the economy exposed
if the revenue stream dries up. Given the potentially vola-
tile nature of these inflows, program countries—and small
economies in particular—need to build buffers by saving
the inflows and reducing public debt where it is already
high. Prudent management of citizenship inflows would
allow for a sustainable increase in public investment and
accommodate what economists call countercyclical spend-
ing—spending when times are bad—and relief measures
in the face of natural disasters. As in resource-rich econo-
mies, managing large and persistent inflows is best under-
taken via a sovereign wealth fund. This would help deal
with fluctuations in program revenues and stabilize the
impact on the economy, possibly also providing scope for
intergenerational transfers.
In any case, all fiscal revenue from economic citizen-
ship programs, whether application fees or contributions
to development funds, should be channeled through the
country’s budget to allow for proper assessment of the fis-
cal policy stance and avoid complications in fiscal policy
implementation. In particular, development funds financed
by economic citizenship programs should have their role
properly defined and their operations and investments fully
integrated in the budget.
Effective management of inflows, combined with prudent
fiscal administration, will also reduce risk to the external
sector, by containing the expansion of imports, limiting the
rise in wages and the real exchange rate, and accumulat-
ing international reserves—to serve as a buffer in case of a
sharp slowdown in program receipts. Strengthening bank-
ing sector oversight is also needed to moderate risks arising
from the rapid influx of resources to the financial system.
Caps on credit growth, restrictions on foreign currency
loans, or simply tighter capital requirements may be needed
to dampen the procyclical flow of credit.
Managing a reputation
Preserving the credibility of the economic citizenship program
is perhaps the most critical challenge. A rigorous due diligence
process for citizenship applications is essential to preclude po-
tentially serious integrity and security risks. And a compre-
hensive framework is needed to curtail the use of investment
options as routes for money laundering and nancing criminal
activity. Such safeguards are integral to the success of economic
citizenship programs. A high level of transparency regarding
economic citizenship program applicants will further enhance
the program’s reputation and sustainability. is could include a
publicly available list of newly naturalized citizens. Complying
with international guidelines on the transparency and exchange
of tax information would reduce the incidence of program mis-
use for purposes of tax evasion or other illicit activities and min-
imize the risk of adverse international pressure. Countries with
similar programs should also collaborate among themselves and
with concerned partner countries to improve oversight and en-
sure that suspicious applicants are identied.
Moreover, to help garner necessary public support for
these programs, the economic benefits should accrue to
the nation as a whole. They should be viewed as a national
resource that may not be renewable if the nation’s good name
is tarnished by mismanagement. A clear and transparent
framework for the management of resources is necessary,
including a well-defined accountability framework with
oversight and periodic financial audits. Information on the
number of people granted citizenship and the amount of rev-
enue earned—including its use and the amount saved, spent,
and invested—should be publicly available.
The ever-surprising effects of globalization have given rise
to a new dynamic whereby passports can carry a price tag.
Economic citizenship programs facilitate travel for citizens of
emerging and developing economy countries in the face of
growing travel restrictions and are an unconventional way for
some countries, particularly small states, to increase revenue,
attract foreign investment, and bolster growth. Keeping these
programs from being shut down calls for efforts to ensure
their integrity, and the security and financial transparency
concerns of advanced economies must be duly addressed.
Small states offering these programs must develop macroeco-
nomic frameworks to deal with the potential volatility and
inflationary impact of the inflows, by saving the bulk of them
for priority investment in the future and by pacing and regu-
lating their flow into the private sector.
■
Judith Gold is a Deputy Division Chief and Ahmed El-Ashram
is an Economist, both in the IMF’s Western Hemisphere
Department.
is article is based on a 2015 IMF Working Paper, “Too Much of a Good
ing? Prudent Management of Inows under Economic Citizenship
Programs,” by Xin Xu, Ahmed El-Ashram, and Judith Gold.
A rigorous due diligence process for
citizenship applications is essential.
