Puerto Rico’s economic recession is poised to worsen as residents continue to leave the island, threatening to deepen the fiscal crisis that’s pushing the island to default on a growing share of its $70 billion of debt.
The Planning Board, which calculates the island’s economic growth, released its fiscal 2017 forecast, estimating a 2% drop in gross national product for the fiscal year beginning July 1. The commonwealth agency revised its forecast for the fiscal year ending June 30 to a 1.2% drop. The earlier estimate was for a 1.3% decline, Bloomberg reported.
The commonwealth’s economy last expanded in fiscal 2012, when it saw a 0.5% boost, according to the planning board. It’s shrunk by an estimated 16.5% since 2007.
Puerto Rico and its agencies borrowed as the economy contracted to fill budget shortfalls and now owe $70 billion. Governor Alejandro Garcia Padilla in June 2015 said the commonwealth was unable to repay all of its debts and would seek to reduce those obligations by asking investors to accept losses on their holdings.
A record number of residents left the island last year for work on the US mainland. Another 240,000 Puerto Ricans are forecast to leave by 2025, according to the planning board. Its 11.7% jobless rate is higher than any state and double the national average.
Estimates of the extent of the slowdown were also adjusted for prior years. Projections for fiscal 2015, which ended June 30, 2015, were revised to a drop of 0.6%, compared with a prior estimate of a 0.7% decline. The fiscal 2014 estimate was revised to a contraction of 1.7%, from one of 0.9%.
Puerto Rico’s Government Development Bank failed to pay bondholders nearly $400 million on May 2. The default is the largest such payment failure by a commonwealth entity, after two smaller agencies skipped principal and interest payments. The GDB is working under an emergency period that allows the governor to restrict withdrawals for programs that support health, safety and education.
The commonwealth and its agencies owe $2 billion in principal and interest on July 1. Garcia Padilla has warned of continued defaults unless Puerto Rico reaches a restructuring agreement with its creditors.
