Larger Deficits, Slow Growth Prompt Revision of Long-term Fiscal & Economic Growth Plan
SAN JUAN – The Puerto Rico government released Monday an update to its long-term fiscal & economic growth plan (FEGP), now reflecting the recent reduction in revenue projections and a longer period coverage, with the plan now running for 10 years, according to a written statement released by the government on Monday.
In response to creditor requests for additional information, the revised FEGP extends its projections until fiscal year 2025, and now shows a larger than originally anticipated financing gap for the next five fiscal years, from $14 billion to $16.1 billion, assuming the commonwealth implements all the measures proposed under the FEGP. Government revenue is also expected to fall by $1.7 billion during the five-year period.
“The General Fund revenues included in the FEGP have decreased from a previous estimate of $9.46 billion for FY 2016 to $9.21 billion; the estimated five-year projected financing gaps increase from approximately $14 billion to $16.1 billion, even with the inclusion of economic growth and the implementation of all of the proposed measures in the FEGP; and the ten-year projections estimate a $23.9 billion aggregate financing gap,” the statement reads.
The new version also takes into account the administration’s latest fiscal measures aimed at stabilizing the commonwealth’s cash flow, but these measures are “neither sustainable nor in the interest of any stakeholder, as they will only deepen the financial gaps that the commonwealth and its creditors will need to resolve, while at the same time placing the full burden of the crisis on the residents of Puerto Rico,” Secretary of State Víctor Suárez stated.
The economic plan was first released last September by the Economic Recovery Working Group and includes a host of reform measures and other initiatives mainly aimed at bringing back economic growth and fiscal stability to the island. It also proposed a local fiscal oversight board, a measure that was later enacted into law, although its members have yet to be named by La Fortaleza.
Creditors’ advisers were presented during a conference call held Friday with the government’s new FEGP, the Government Development Bank (GDB) stated last week.
Moreover, given the latest developments, the García Padilla administration’s debt-restructuring proposal is being “adjusted accordingly,” the GDB statement further reads, although the plan is still geared toward putting together a “superbond” deal, whereby Puerto Rico bondholders would be able to exchange their existing commonwealth debt into new, more secure paper. The idea underpinning the proposal is to restructure, in one fell swoop, a large chunk of the island’s $70 billion debt, while taking into consideration the particularities of each type of commonwealth debt.
After meetings between representatives of several creditor groups and commonwealth advisers took place late last year, talks had yet to resume. What’s more, some creditor groups allege the commonwealth government has cancelled scheduled meetings with representatives of certain creditor groups.
“We expect to sit with our creditors shortly and put forth a comprehensive restructuring proposal,” GDB President Melba Acosta stated Monday, one that “reflects the commonwealth’s actual capacity to pay its creditors over the long term.” A restructuring of the commonwealth’s obligations is imperative, and action from Congress will ensure that a reduction in federal programs does not exacerbate the already daunting fiscal adjustment the commonwealth must undertake, the statement further reads.
The commonwealth has resumed its lobbying efforts on Capitol Hill, which mainly center on securing access to Chapter 9 of the U.S. Bankruptcy Code. This would allow Puerto Rico to restructure more than $20 billion of public corporation debt, and could potentially change the commonwealth’s game plan in negotiating with its creditors.
For Acosta, “the updated FEGP emphasizes that time is running short and, while we do not expect the lobbying efforts of those seeking to lock in speculative gains to end, we do hope our creditors will sit and work with us on a solution.”
The García Padilla administration is banking on congressional action, particularly over Chapter 9 access, during the first quarter of the new year as it tries to avoid additional defaults amid a steeper debt-service schedule that begins in summertime.
Photo: GDB President Melba Acosta