Puerto Rico is expected to post a cumulative budget surplus of $15.2 billion through 2035 as $123.5 billion of federal disaster funds and coronavirus relief money helps boost the local economy, according to the commonwealth’s latest fiscal plan.
That surplus is crucial because the island’s financial oversight board anticipates using the money to cover Puerto Rico’s debt-service costs. The commonwealth would begin to repay principal and interest on its bonds as soon as January 2022 if it’s able to restructure its debt this year as part of its bankruptcy, according to the plan posted on its website.
While the estimate pushes out anticipated deficits by four years to fiscal 2036, Puerto Rico Governor Pedro Pierluisi and the island’s legislature will need to implement structural reforms to realize the surpluses and continue economic growth after the federal cash runs out, Natalie Jaresko, the board’s executive director, said Friday during a meeting where the panel voted unanimously to approve the fiscal plan.
“We have a unique opportunity, given by significant federal funds, given by the fact that we will be getting out of bankruptcy,” Jaresko said during the meeting. “And we can take not small steps, but big steps to get over the finish line and that finish line is a better life for Puerto Ricans right here in Puerto Rico.”
The multi-year proposal serves as a framework for Puerto Rico’s yearly operating budgets.
The release comes as the board has reached tentative deals with bond insurers and rival bondholder groups that would slash $18.8 billion of debt tied to the central government by 61% to $7.4 billion. Those agreements may allow the commonwealth to resolve its bankruptcy this year.
Puerto Rico’s bankruptcy started in May 2017, when it sought to restructure most of the $74 billion of debt the commonwealth and its agencies owed at that time. Puerto Rico will pay an estimated $1.6 billion in professional fees and expenses from fiscal 2018 through fiscal 2026 to restructure its obligations, according to the fiscal plan.
The projected $15.2 billion surplus is for fiscal 2022 through fiscal 2035, the last year before deficits are set to return. That’s a boost from May 2020, when the board approved a fiscal plan reflecting the pandemic’s harm to the island’s economy and included a $5.8 billion surplus from fiscal 2022 through fiscal 2031, with deficits beginning in fiscal 2032.
Still, the $15.2 billion cushion is smaller than the board’s pre-pandemic estimate of an $18.4 billion surplus from fiscal 2022 through fiscal 2037.
If island lawmakers fail to implement structural reforms such as increasing workforce participation and making it easier to do business, the commonwealth would have a budget deficit as soon as fiscal 2023, according to the fiscal plan.
“In the next couple of years if these structural reforms aren’t implemented, once this federal money goes away, the commonwealth is going to have some serious financial problems,” said board member John Nixon, who served as Michigan’s budget director from 2011 through 2014.
The island’s economy is expected to increase this year by 1%, up from an earlier estimate of .5%. It’s projected to then grow in the next four years by a combined 1.4%, compared with an earlier forecast of a 3% contraction during that time.
For long-term growth, the fiscal plan includes labor and welfare reforms to boost workforce participation, improvements to K-12 education, reducing hurdles for starting and sustaining a business, and making electricity on the island more reliant and affordable.
If enacted, those changes could increase revenue by nearly $31 billion from fiscal 2022 through fiscal 2051, according to the plan.
(Updates with board vote in the third paragraph.)
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