IMF to examine Dominica’s CBI program

Dominica government cautioned by the IMF to exercise prudency in operating its citizenship for investment program

Citizenship by investment

The International Monetary Fund (IMF) has told Dominica that a prudent management framework of its Citizenship by Investment (CBI) revenues is key, regardless of the expected duration of the windfall with priority given to capital spending, debt reduction and saving.

Dominica is among several Caribbean countries implementing a CBI program through which foreign investors are granted citizenship of the country in return for making a significant investment in its socio-economic development.

Highly volatile and unpredictable receipts

In a paper which examined the CBI before the passage of Hurricane Maria in September, the Washington-based financial institution said due to the highly volatile and unpredictable nature of CBI receipts, “the policy options to allocate such revenues should be carefully examined with sufficient consideration given to potential effects on the country’s medium and long-term macroeconomic fundamentals”.

Country’s reliance on revenue

The IMF had noted that the Dominica CBI inflows had reached near 10 per cent of gross domestic product (GDP), increasing the country’s reliance on these revenues. It argued that that given their volatile and unpredictable nature, CBI revenues should be used prudently.

The IMF said that the long-term disadvantages of allocating additional CBI revenues to current expenditure outweigh the benefits and that the analysis has shown that using CBI flows to increase public consumption could lead to lower levels of output and threaten the sustainability of government finances.

The study also showed that this is the case even if a sudden stop were to happen in the relatively later in time, after critical constraints affecting current expenditure decisions are considered.