Caribbean Trade Law and Development

Tag: IMF Staff Report

  • Citizenship by Investment receipts help power economic recovery in Eastern Caribbean Countries

    Citizenship by Investment receipts help power economic recovery in Eastern Caribbean Countries

    Alicia Nicholls

    Receipts from citizenship by investment programmes (CIPs) continue to be a major contributor to economic recovery in the Eastern Caribbean Currency Union (ECCU). This is according to the International Monetary Fund’s latest Staff Report on the ECCU released this month (October 2016).

    CIPs have been an important development tool in Eastern Caribbean countries. In January 2016 St. Lucia became the 5th ECCU country to institute a CIP. The other ECCU countries which run CIPs are St. Kitts & Nevis, Grenada, Dominica and Antigua & Barbuda.

    According to the IMF, most ECCU governments continued to rely on CIP inflows to fund their budgets in 2015. CIP inflows were highest in St. Kitts and Nevis, which has the world’s longest running CIP. In that country, CIP revenues to the public sector were at 17.4 percent of GDP. The report also noted that inflows reached 7.9 percent of GDP in 2015 in Antigua and Barbuda and 3.6 percent in Dominica.

    However, the IMF did mention several potential downsides to the sustainability of the CIPs, including the increased competition ECCU CIPs face not only amongst themselves but from other CIPs and residency programmes worldwide, including Malta’s. Other risks the IMF mentioned include rising global migration pressures, elevated security concerns and geopolitical tensions which may trigger adverse actions by the international community, including suspension of visa-free travel for citizens of CIP countries.

    In order to improve the sustainability of the programmes, the IMF also encouraged authorities to “develop a strong, regionally accepted set of principles and guidelines for citizenship by investment programs in order to enhance their sustainability” The staff suggested that the authorities share due diligence information on clients to prevent citizenship shopping in cases where an application is rejected by one jurisdiction.

    The IMF cited the need to improve the management of the programmes and cautioned against over-reliance on CPI revenues for funding recurrent budgetary operations. Mindful of the threat posed by natural disasters, the IMF posited that CIP countries save the bulk of the CPI revenues in a well-managed fund to address natural disaster shocks and to fund disaster resilient infrastructure.

    Arguing that a comprehensive governance framework is crucial to mitigating increased risks facing CIPs, IMF also recommended more transparency by making data on the programmes public and subject to financial audits.

    The full IMF Staff Report for the ECCU may be viewed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • Correspondent Banking concerns raised in IMF’s Staff Report on Belize

    Alicia Nicholls

    Though noting that the termination of major correspondent banking relationships with Belizean banks has so far had a limited impact on that country’s financial system and economic activity, the International Monetary Fund (IMF) in its latest staff report on Belize pursuant to its Article IV consultations agreed that the “recent termination of corresponding banking relationships with Belizean banks and banks in many other countries could have a significant impact on financial stability and economic activity in the affected countries.”

    Belize is one of the few Caribbean countries, whose government still sees it fit to allow the IMF  Article IV staff reports to be publicly available. Belize has been at the forefront of efforts by Caribbean governments to raise awareness about the havoc the loss of correspondent banking relationships due to international banks’ de-risking practices could have on the economies of the Region, including on their trade, investment and remittance inflows.

    Last year, Bank of America, one of the largest US banks, terminated its correspondent banking relationship with Belize Bank. The IMF staff report noted that this had had a limited impact on the financial system as new arrangements were able to have been put in place with the help of the Central Bank and major credit card companies. However, among the downside risks which could affect their baseline outlook, the IMF noted that “other banks could also lose their CBRs with global banks with severe impact on international financial transactions”.

    IMF directors “urged the authorities regulating international banks that are terminating correspondent banking relationships to better clarify their expectations of how these international banks should deal with local banks they perceive as “high risk””.

    The IMF staff lauded Belize’s AML/CFT reform efforts, noting that “the deficiencies identified by the Caribbean Financial Action Task Force (CFATF) in 2011 have been mostly addressed”. They did, however, stress that “important reforms are still needed to ensure compliance and effective implementation of Belize’s AML/CFT regime in line with the 2012 FATF standard”.

    In regards to Belize’s overall macroeconomic position, the IMF highlighted the recent improvement in economic activity. However, they noted that “Belize’s economic outlook is characterized by sluggish growth, weak fiscal stance, and external and financial sector vulnerabilities”. Though predicting that growth over the short-to-medium term would hover around 2.5 percent, they noted that excess spending could cause the fiscal outlook to worsen. They also expect public debt to increase to “unsustainable levels” in excess of 100 percent of GDP in 2016.

    The full IMF Staff Report on Belize may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.