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Too Much of a Good Thing? Prudent Management of Inflows under Economic Citizenship Programs

29 June 2015

The International Monetary Fund (IMF) has released a working paper entitled, “Too Much of a Good Thing? Prudent Management of Inflows under Economic Citizenship Programs”. The paper explores the advantages and the pitfalls of the recent proliferation of Economic Citizenship Programs (ECPs).

An increasing number of countries are offering opportunities to obtain citizenship or residency in exchange for a substantial financial contribution to the domestic economy. ECPs (also referred to as citizenship-by-investment programs) are particularly attractive to small states, for which inflows can be large enough to have a significant economic and fiscal impact, while an increasing number of advanced economies are also offering ECPs.

These programs are increasingly becoming mainstream, as high net-worth individuals consider citizenship or residence as a means to improving international mobility, tax planning, and family security while also seeking investment opportunities. Furthermore, a growing number of intermediaries have recognized the business opportunities as more countries launch new programs that cater to such needs.

The paper discusses recent developments and implications of such programs for fiscal discipline and the real economy, including risks to macroeconomic and financial stability, with a focus on small state economies. It discusses the prudent management of these programs, overviews strategies to minimize risks to various sectors, and addresses potential governance and integrity challenges.

The paper proposes a framework for managing inflows and savings from ECPs to contain macroeconomic risks, and it recommends the establishment of a sovereign wealth fund where such revenues are large and persistent.

It is available for download on the IMF website here.