Puerto Rico said the island’s financial situation is worsening and increased estimates of how much the commonwealth will fall short of being able to make debt payments over the next decade to $23.9 billion.
Revenue will fall short of covering principal and interest payments each year through 2025, according to an updated fiscal and economic growth plan released by Governor Alejandro Garcia Padilla’s administration Monday. The payment deficit over the next five years has widened to an estimated $16.06 billion, up from a $14 billion forecast in September. Creditors asked Puerto Rico to extend the plan to 10 from five years, the administration said.
The swelling gap is based in part on lower than anticipated revenue collections for this fiscal year, the report said. The update was made as Puerto Rico engages in talks with bondholders to reduce the island’s $70 billion debt burden. Without a debt restructuring, there will be widespread defaults throughout the commonwealth’s debt stack, a senior Puerto Rico official reiterated in a phone call with reporters Monday.
“The information contained in the updated plan makes all the more clear that actions must be taken before the commonwealth runs out of options to pay its debt and provide essential services to the people of Puerto Rico,” Melba Acosta, president of the Government Development Bank, said in an e- mailed statement Monday.
The revenue estimates were revised before U.S. Treasury Secretary Jacob J. Lew travels to San Juan on Wednesday to discuss Puerto Rico’s financial challenges with Garcia Padilla and other island lawmakers. A commonwealth agency defaulted on a $35.9 million interest payment Jan. 4 after the administration redirected revenue that’s normally used to repay agency debt to instead cover general-obligation payments.
Puerto Rico has delayed tax rebates and payments to suppliers as its cash dwindles. It faces a $923 million negative cash balance in June just as the commonwealth and its agencies must pay $2 billion in principal and interest July 1, according to the updated fiscal plan. Puerto Rico officials have urged Congress to allow certain island agencies to use municipal bankruptcy, a provision they currently don’t have. In a letter to House Speaker Paul Ryan last week, Lew requested that Congress pass legislation to assist Puerto Rico by the end of March.
“The failure of the government to make timely payments for the delivery and provision of essential government services is putting at risk the health, welfare and safety of the people of Puerto Rico,” Victor Suarez, the island’s Secretary of State, said in an e-mailed statement. “Continuation of these measures is 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.”
Puerto Rico and its agencies borrowed for years to fill budget shortfalls as the island’s economy has struggled to grow since 2006. The commonwealth held a conference call with investor advisers Friday to discuss the revised plan. Puerto Rico expects to offer its creditors a debt-restructuring proposal ”soon,” a senior commonwealth official said during Monday’s call with reporters.
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