The Puerto Rico Oversight Board’s proposed plan to guide the island’s financial recovery has 65% less money available for paying debt service through fiscal 2032.
Board Executive Director Natalie Jaresko said she expects the island’s central government to have $8 billion in surplus money through fiscal 2032, rather than the $23 billion the May 2019 fiscal plan had projected.
Jaresko presented the staff-proposed fiscal plan Tuesday. Since the board’s foundation in 2016, its members have always approved the staff plan without any changes. The board is to vote on the plan Wednesday.
Jaresko declined to answer a question about what the plan will mean for the board’s proposal for paying debt service. She said the board has put the process of the central government’s plan of adjustment on hold while it handles doing the plan and the budget.
While the surplus is expected to pay the debt, the board has always said that not all of the surplus will be used to pay its debts. Some will be used for capital spending.
The board is also projecting operating deficits for the period from fiscal 2032 to fiscal 2049. Assuming the plan’s structural reforms are implemented, it anticipates a cumulative deficit of $22 billion through the latter date.
“The road ahead is much more uncertain than even a couple months ago and certainly from a couple years ago,” Jaresko said. The COVID-19 pandemic has led to a world economic crisis and island shutdown, affecting the local economy.
She projected losses and gains in real gross national product for the next five years, at least. Puerto Rico is facing percentage changes of -4% this fiscal year, 0.5% in fiscal 2021, -1.5% in fiscal 2022, -1.9% in fiscal 2023, 0.5% in fiscal 2024, and -0.1% in fiscal 2025.
Jaresko said the local government has failed to make meaningful efforts at economic growth through structural reforms or to make major operational reforms. Because of this, the board staff is recommending a one-year delay in cuts to government spending. Instead of that, in the coming fiscal year it wants the government to focus on implementing these sorts of reforms.
The staff is also recommending a plan with a one-year delay in central government subsidy cuts for University of Puerto Rico and the municipal governments.
The proposed fiscal plan will have a fiscal 2021 General Fund spending level at roughly the same level as the current fiscal year.
The current plan anticipates the enactment of some structural reforms. Jaresko said the board has only a limited amount of power or influence to bring about these reforms. Mainly it must rely on the local governor and legislature. If the reforms don’t occur, the island’s economic future will be bleaker. The central government will receive less revenue, she said.
She said the local economy without exogenous negative or positive impacts is expected to contract over the next several years, even if the anticipated structural reforms are enacted. To turn this around, the island would have to have further structural reforms, she said.