Sovereign Equity instead of Sovereign Debt: A Paradigm Shift in Public Finance and Foreign Direct Investment

A core premise of investment migration is to enhance a country’s economy in exchange for residence or citizenship rights for individual investors. This is a good description of a classic ‘win–win’ formula. However, the benefits of residence and citizenship by investment programs for host nations go far beyond extra funding for the national treasury or increased foreign direct investment. One of the sector’s unique and most positive attributes is its ability to endow nations with a source of considerable sustainable revenue without them having to increase debt and thereby burden future generations. This ability to expand a state’s ‘sovereign equity’ by increasing the number of citizens who actively contribute to its future well-being also has the invaluable capacity to reduce a key aspect of inequality within states, as well as between them — a phenomenon that is uniquely facilitated by investment migration.

Sovereign equity in practice

Sovereign equity is a means for governments to improve public finances and support economic growth and employment creation without increasing their debt — meaningfully addressing the growing imbalances and inequalities inherent in traditional sovereign debt financing by engaging with the global community of high-net-worth investors.

There are many sovereign states around the world that lack the traditional capacity to raise sufficient revenue and that may even at times be locked out of financing through capital markets or international lenders.¹ Countries can thus find themselves trapped in negative debt: short of discovering natural resources such as hydrocarbons or minerals, their ability to reduce debt, increase revenue, and attract investment is extremely limited.

Debt financing is helpful and often critical in times of crises. But as Dominica showed in the aftermath of hurricanes in 2017 and 2018 that destroyed large parts of the country’s infrastructure and devastated entire villages, citizenship by investment program inflows were a lifeline that enabled the government to rebuild and to support those affected. Post-pandemic, the island nation is showing signs of recovery. In his 2024/2025 budget address, the Hon. Dr. Irving McIntyre, Dominica’s Minister for Finance, Economic Development, Climate Resilience and Social Security, said the IMF reported that the country’s economy grew by 4.7% in 2023, compared to the world economy’s estimated 3.2%, marking the third consecutive year of growth for the Dominican economy, which is projected to continue its current trajectory with growth of 4.6% in 2024 and at least 4.3% in 2025. Minister McIntyre also noted that of the projected recurrent revenue of XCD 1,202.5 million, XCD 760.0 million is expected to be raised through the citizenship by investment program, saying, “As a country, we have made significant progress without imposing additional taxes on citizens. Thanks to the inflows from the CBI Programme which we have used to offset some of the capital costs that otherwise would have had to be borne by residents, and the prudent and responsible management of the country by this Labour Party administration.”

Outside a crisis, when countries find themselves lacking fiscal autonomy, they lose the ability to operate as truly sovereign states, forfeiting the gains from their economies to pay off creditors.² They are also unable to invest sufficiently in core infrastructure, education, and health services that enhance the lives of their citizens.³ This can lead to a society’s best and brightest leaving to pursue opportunities elsewhere, depriving their birth countries of their skills, and in turn diminishing the prospects and quality of life of the general population.

Investment migration is arguably the single most effective means of addressing this dilemma. As a direct injection of liquidity into a country’s economy, it relieves stress on the national treasury without tying the country into debt-based obligations. Moreover, as well as a being source of income, it is a proven driver of foreign direct investment. This twin dynamic is extremely effective in mitigating the problems arising from sovereign debt and limited inbound investment, ultimately providing greater national autonomy and prosperity for all citizens.

Investment migration, fiscal autonomy, and freedom

Prudently managed residence and citizenship by investment programs that conduct stringent due diligence on applicants and that have transparent structures can drive investment without adding to the burden of sovereign debt. The funding generated in this way can be used either to pay off existing debt or to create societal value through strategically targeted government spending. This provides governments with significantly increased fiscal autonomy, a key factor in the degree to which a country can be sovereign.

Investment migration programs also act as remarkably successful foreign direct investment platforms to attract capital and skills to economies far beyond the specific investment requirements of each program. The numerous material benefits of foreign direct investment are clear, but it is in the beneficial social impact created by this type of investment that real human value is found.

Increased investment fosters valuable employment opportunities for citizens across the board, from architects and construction workers, to employees of manufacturing and technology firms, in addition to the tourism sector and other service industries. The result is more business activity and job creation, leading to a more dynamic and positive socio-economic environment overall. The natural consequence of this is the alleviation of pressure on government spending, further increasing fiscal autonomy and ultimately establishing greater prosperity.

Proven socio‑economic benefits

In the aftermath of the 2008 financial crisis, Malta’s economy, for example, like the economies of the rest of Europe, was weak. Just years after the launch of its first citizenship program in 2014, the country had one of the highest growth rates and one of the lowest unemployment levels of any European Union member state. Before the coronavirus struck, Malta’s was the best performing economy in the European Union by almost any measure. Furthermore, between 2017 and 2019 (before the downturn caused by the pandemic), Malta reported annual budget surpluses for the first time in decades. In its six years of operation, Malta’s Individual Investor Programme attracted more than EUR 1.13 billion in contributions collected by the Community Malta Agency, EUR 320 million in property purchases and rent, EUR 220.9 million in investments in government stocks, and EUR 5.9 million in donations. Such results are virtually impossible to achieve using traditional public finance methods.

In the Caribbean, a similar success story has been unfolding. Since the reform and relaunch of the St. Kitts and Nevis Citizenship by Investment Program in 2007, the subsequent investment boom in the dual-island nation and in several other countries that launched or enhanced programs is remarkable, and unprecedented in the region’s history.

Following independence from Britain, the Federation of St. Kitts and Nevis witnessed a decline in its sugar industry. It became unsustainable to produce sugar on the islands and to compete in world markets, resulting in a significant annual deficit, which threatened to undermine the entire economy.⁴ Thanks to its citizenship by investment program, St. Kitts and Nevis was able to restructure its economy away from loss-making sugar production and raise hundreds of millions of dollars in foreign direct investment geared towards providing a sustainable transition and laying the foundations for future growth and development.⁵

Program revenues bolstered St. Kitts and Nevis when the pandemic struck. According to the IMF, “St. Kitts and Nevis entered the Covid-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues were prudently saved, reducing public debt to below the regional debt target of 60 percent of GDP and supporting accumulation of large government deposits.”

During the closing session of Henley & Partners’ 15^th Global Citizenship Conference in 2021, the Hon. Mark A.G. Brantley, Premier and Minister of Finance of Nevis said, “If you were to ask what saved St. Kitts and Nevis during the pandemic, I would say citizenship by investment. This experience has demonstrated that citizenship by investment has a place in this world, particularly for small countries like ours, and for countries which do not have access to vast resources.”

The St. Kitts and Nevis Citizenship by Investment Program continues to bring great value, the IMF reporting solid revenues at 22% of GDP in 2023.

In his 2024 budget address, Premier Brantley stated that recurrent revenue was expected to be augmented by at least XCD 66 million from the program. The total overall recurrent revenue projected for 2024 was XCD 220.8 million, representing a surplus of XCD 12.4 million.

In neighboring Antigua and Barbuda, the Hon. Gaston A. Browne, Prime Minister and Minister for Finance, Corporate Governance and Public Private Partnerships said in his budget statement for 2024 that revenue from the citizenship by investment program, created in 2013, brought in XCD 67.9 million in 2022 and the same was expected in 2023. This contributed to the government’s ability to reduce the burden of imported inflation on citizens and businesses through fuel subsidies and tax cuts. Looking to 2024, he said citizenship program receipts of XCD 130 million were projected to be a major component of the budgeted non-tax revenue of XCD 176.9 million.

In 2021, Prime Minister Browne stated: “The significant damage to our economy by the global effects of Covid-19 underscored the importance and benefits of the citizenship by investment program. As tax revenues fell rapidly and swiftly, it was — and continues to be — that the citizenship by investment program has helped to sustain our economy.” Program inflows are responsible for substantial investments in the construction sector that have helped to create a sustainable tourism and leisure industry. 

In addition, investment migration has been a major driver in the country’s transition to renewable energy. Thousands of solar panels have been successfully installed on government buildings and land throughout Antigua, in significant part paid for by the citizenship by investment program. The program was also essential in providing the necessary capital to support efforts to rebuild Barbuda after Hurricane Irma devastated the island in 2017.

On the macro level, before Covid-19 struck, the liquidity injected into the sovereign balance sheet and the long-term income streams created by new businesses and their associated tax revenues had helped the island nation to pay off its entire external debt to the IMF — over XCD 320 million — built up after the economy shrank by one quarter during the 2008 global financial crisis. Following the economic impact of Covid lockdowns, which resulted in overall debt of 94% of GDP in 2020 during the pandemic, authorities were quick to reduce this to a more sustainable 75% in 2022, and even further to 66% in 2023.

The Caribbean’s newest program — the St. Lucia Citizenship by Investment Program — was launched in December 2015 and by 31 March 2022 had contributed XCD 268.3 million. According to the latest information available at the time of writing, in 2021/2022, it raised XCD 51.8 million in funding to the National Economic Fund and also generated XCD 44.9 million in bond financing for the government.

In his 2024/2025 budget address, the Hon. Phillip J. Pierre, Prime Minister of St. Lucia, explained that the government’s new infrastructure option, introduced in December 2023, which requires developers to raise financing to undertake approved projects in selected areas and recover their expenses through inflows from the citizenship program, means “improvement in the road network, community development projects, and housing can be implemented to improve the lives of our people without increasing the debt burden of the country”. He also announced that the government had decided to leverage the program to bring more direct benefit to the people of St. Lucia, saying, “This year, we intend to construct houses under the CIP programme, as has been done in other islands.”

Another Caribbean nation hosting a citizenship by investment program is Grenada, which relaunched its program in 2014. This has been a huge success: in June 2024 the IMF reported that “Grenada’s economy is experiencing sustained, strong growth supported by buoyant tourism. A surge in citizenship-by-investment (CBI) revenue has resulted in a large budget surplus, an increase in government deposits, and lower public debt.”

However, Grenada’s economy faced a significant setback due to the destruction caused by Hurricane Beryl on 1 July 2024. Despite this, economic growth for 2024 was still anticipated, buoyed by investment migration program inflows. According to Grenada’s 2025–2027 Medium-Term Fiscal Framework, “The rebranded Investment Migration Agency Grenada (IMA)…recorded a 58.5 percent increase in revenues compared to the same period in 2023… In 2024 IMA Revenues amounted to 88 percent of non-tax revenue an 11.0 percentage point increase compared to 2023.”

In his keynote speech at Henley & Partners’ 17^th Global Citizenship Conference in 2023, the Hon. Dickon Mitchell, Prime Minister of Grenada said, “It is our experience in Grenada that such citizenship programs support economic growth and allow our transformation agenda to be more sustainable than it would have been had we relied solely on the debt-financing market. This provides far greater national autonomy. This new source of income is also a resource that can be used to service debt and lessen dependence on industrialized nations of the Global North, or to multi-lateral finance institutions.”⁶

Fostering innovation

Montenegro, which launched its citizenship by investment program in 2019, has also experienced an extremely positive impact. According to information published by the Montenegrin Investment Agency, 850 applications had been approved by September 2024, contributing EUR 84.5 million into funds for the development of less developed municipalities and the Innovation Fund of Montenegro as well as EUR 43.5 million to Montenegro’s budget through program fees. Development projects had seen about EUR 243.7 million in investment, allowing for substantial luxury hotel developments across the country, including by renowned brands such as Intercontinental, Pullman, Radisson, SIRO, and Swissotel.

Montenegro can be satisfied with the success of the program, which has the potential to conclude on a highly successful note with an estimated total contribution of more than EUR 500 million to the Montenegrin economy over the course of its implementation.

The program’s impact on the development of the country is evident in the effect it has had on fostering and advancing innovation, specifically through the Innovation Fund of Montenegro. The Fund has financed 14 projects in the early start-up phase and recognizes that the contributions obtained through the program implementation are “an important potential source of financing innovations, as well as the field of science in Montenegro in the future”. During his term as Minister of Economic Development, the President of Montenegro, Jakov Milatović, recognized the important role the program would play in promoting innovation: “The innovation fund will receive a strong injection from the economic citizenship program — which will make Montenegro the regional leader in allocation for innovation! In this way — by developing tourism — we strongly support the development of innovations — as the basis of accelerated economic development!”

In addition to boosting fiscal health and economic growth, the enhanced inflow of investment generated by the citizenship program may enable Montenegro to be more competitive and its economy to be more sustainable, resulting in greater autonomy. This sovereign equity may see Montenegro less dependent on foreign lending and better able to drive national resources to where they are most needed. Ordinary citizens will feel the benefits in economic growth, employment opportunities, better social services, and improved infrastructure and education.

Sovereign equity in an era of volatility

The concept of sovereign equity is both self-evident and revolutionary. It has the potential to fundamentally shift how sovereign states approach sovereign funding, attracting investment from abroad, and public finance. Sovereign equity also addresses persistent global inequality. Foreign direct investment has been shown to be essential for developing, transitional, or recovering economies, but it can also be critical for regional development in large, advanced economies. Sovereign equity, possible through investment migration, will support ongoing economic growth and prosperity.

The benefits of sovereign equity enable countries to turn away from debt and dependency and turn towards fiscal autonomy, stability, and independence. For those countries that are able to offer investment migration programs, they are one of the most important opportunities for growth and economic development, creating societal value and encouraging productive members of the community to stay and contribute to the host country rather than emigrate.

All of this was true before the pandemic, which fundamentally damaged the global economy and was rapidly followed by Russia’s invasion of Ukraine and, more recently, the crisis in the Middle East, which continue to have major effects on global markets. Sovereign equity could be a partial solution to the challenges that government decision-makers will face in the months and years to come.

All sovereign states need capital, ideally from a debt-free source of liquidity. Even with cheap debt, there is insufficient liquidity. The pandemic saw central banks in advanced and emerging market economies taking unprecedented actions to ease financial conditions and support economic recovery, including interest-rate cuts and asset purchases. In late 2021, however, policymakers began to tighten policy, with inflation at multi-decade highs in many countries, and pressures broadening beyond food and energy prices. While the global economy is showing signs of improvement and inflation is falling steadily, the upturn continues to be fragile. Significant downside risks and geopolitical tensions persist. Countries are constantly competing for vital foreign direct investment and talent to diversify their economies and introduce opportunities to their societies. What sovereign states require is a competitive edge — this is what sovereign equity can provide.

An innovative financing mechanism

Nation states can use alternative residence and citizenship programs as an innovative financing tool to allocate investors’ funds to national or regional social, infrastructure, and development projects that benefit their citizens. Investors gain a long-term yield in the form of enhanced global mobility. Alternative residence or citizenship is a unique investment that permits them to be as globally diversified as their wealth portfolios.

Furthermore, the liquidity pool will continue to expand. A growing number of millionaires with global wealth portfolios are not able to travel efficiently because of their birth citizenship. This market creates a rising demand for sovereign equity products. To meet this surge in demand, the increase in sovereign equity offerings is highly likely to continue. These may be positioned as specially branded offerings from existing sovereign equity providers. However, the more dramatic moves could come from sovereign states that choose to enter the market, whether by offering residence rights or citizenship rights, to rebalance their socio-economic mixes in the wake of Covid-19 and the ripple effects of the war in Ukraine and the Middle East crisis.

In short, investment migration is a long-term positive solution, injecting liquidity into an economy, generating sustainable income streams that can support public financial needs, and attracting much-needed foreign direct investment, creating significant sovereign and societal value.

Notes and printed references

¹ S. Park and T. Samples, ‘Towards Sovereign Equity’ (2016) Stanford Journal of Law, Business, and Finance 21(2)

² M. Guzman, J.A. Ocampo, and J.E. Stiglitz (eds.) Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises (Columbia University Press 2016)

³ Ibid.

⁴ J.C. Okwuokei and B. van Selm, ‘Debt Restructuring in the Caribbean: The Recent Experience’ in K. Srinivasan, I. Otker, U. Ramakrishnan, and T. Alleyne (eds.), Unleashing Growth and Strengthening Resilience in the Caribbean (International Monetary Fund 2017) 165

⁵ J. Gold and A. Myrvoda, ‘Managing Economic Citizenship Program Inflows: Reducing Risk and Maximizing Benefits’ in K. Srinivasan et al. (eds.), Unleashing Growth and Strengthening Resilience in the Caribbean (International Monetary Fund 2017) 131

⁶ Mitchell, D. 2023. ‘Attracting Global Citizens through Investment Migration — And Why This is Vital for the Future’ 17th Global Citizenship Conference (8 to 10 November 2023)

Dr. Christian H. Kaelin, TEP, FIMC, Chairman of Henley & Partners, is considered one of the world’s foremost experts in investment migration, a field he pioneered. Holding master’s and PhD degrees in law from the University of Zurich, he advises governments and international organizations. He is the author, co-author, and/or editor of many publications, including standard works such as the Global Residence and Citizenship Handbook, the Kälin – Kochenov Quality of Nationality Index, Ius Doni in International Law and EU Law, and the Switzerland Business & Investment Handbook.