Puerto Rico Oversight Board projecting huge long-term surplus

by Nov 19, 2018Economy0 comments

According to the latest report by the Financial Oversight and Management Board for Puerto Rico, the long-term 40 year surplus is projected to ring in at $20 billion-far higher than their forecast on June 29, where they predicted a surplus of $4 billion. This projection is a result of a new plan expecting increased revenue due to cut costs, an influx of disaster aid, consolidated agencies, healthcare reform, and an increased tax revenue.

Negotiations are still going on before certifying the new fiscal plan, as the board recently submitted a letter to Governor Ricardo Rosselló on September 19, calling for more spending cuts.

This projection bodes well for creditors, hoping to see if some of the surplus money will be returned to bondholders. Coupled with the deals the territory has made with some of its creditors, the price of Puerto Rico’s general-obligation bonds have doubled this year, as the economic outlook of the territory begins to improve.

The territory is proceeding with caution before certifying the new plan, however, as last time it certified a fiscal plan, there was an error with a cost of $4 billion.

Even with the positive outlook for the new projection, the report emphasizes that “Puerto Rico cannot afford to meet all its contractual debt obligations” and deeply requires a “ restructuring of its debt.” Moreover, the territory’s report claims that much of its economic woes and debt could be alleviated in a political manner, stating that “the most important and critical structural reform for Puerto Rico is a permanent solution to its territorial status. The solution to these inequalities is statehood for Puerto Rico.” This would then “stop outmigration, increase the on-island workforce, and grow Puerto Rico’s economy,” perhaps driving the 40 year surplus of the territory even higher if actualized.