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Puerto Rico Economic Outlook 2018: The Climb Begins

By on February 9, 2018

Editor’s note: The following article originally appeared in the Feb. 8-14 print edition of Caribbean Business.

In September 2017, Hurricane Maria made landfall on Puerto Rico with the storm’s eye passing directly over the island. The effect was devastating, leaving a total of $90 billion in damages and taking its toll not only on the human, social and psychological fabric of Puerto Rico but also on its fragile economy, labor market dynamics and individual businesses.

Grim outlook

What’s more, Puerto Rico’s economic outlook faces a bleak prognosis. The latest indicators suggest the decline in real gross national product (GNP) for 2017-18 could be close to double digits and then should improve in subsequent years as federal funds come in, some $21 billion in insurance claims are paid and restoration moves into full force. The government’s most recent revised fiscal plan painted a bleak picture of Puerto Rico struggling to jumpstart an ailing economy that was wounded further still after suffering one of its worst natural disasters in a century. Puerto Rico has requested $94.4 billion in Federal Disaster Relief Assistance, but its projections assume the island will get $35.3 billion.

While the previous 10-year fiscal plan, issued in March of last year, set aside some $3.9 billion to pay the island’s creditors across five years, or an average of about $787 million annually, the new plan, revised after the hurricane, contains no funds to pay creditors. Now, Gov. Ricardo Rosselló is saying the government will wait for the bankruptcy proceedings enabled by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) to be completed to determine debt repayment. A $3.7 billion surplus in the previous plan for the first five years, will now be a $3.4 billion gap, even after the elimination of funding to municipalities, rightsizing the government and enforcing tax laws.

Real GNP, inflation, population, revenues

The real GNP is expected to shrink by 11.2 percent this year and then grow by 7.6 percent in fiscal 2019, dropping to 2.4 percent growth in FY20 and grow in subsequent years fueled by the $35 billion in federal disaster support. The nominal GNP, which is calculated at current price levels, is estimated to fall sharply in FY18, by minus-9.3% because of the hurricanes, only to grow in FY19 by 9.3 percent and 2.4 percent in FY20.

In addition to disaster relief assistance, Puerto Rico requires external liquidity support to finance the gap until fiscal measures are fully implemented, according to fiscal plan numbers.

The plan states the hurricanes will create a spike in inflation of 2 percent in FY19, with subsequent average increases of about 1 percent over the next five years, until FY22.

A 19.4 percent cumulative decline in population is expected over the next five years. Lyman Stone, an adviser for consulting firm Demographic Intelligence, who was invited Nov. 16 to a listening session of the Financial Oversight & Management Board (FOMB), said at the time, the island’s population would shrink by 587,943 in the five years after Maria.

Government revenues are also slated to decline 18 percent in FY18 before increasing 9 percent in FY19 and 4 percent in FY20. Taxes collected from individuals and corporations are expected to decline by 19.1 percent and 11.7 percent, respectively, for FY17 and FY18, as a result of hurricanes Maria and Irma, then will grow annually at a nominal GNP growth rate of 4.5 percent through FY22.

–Read the rest of the story here.

 

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