Fiscal board: PR economy has stalled despite billions in federal recovery funding
By THE STAR STAFF
Puerto Rico’s economy has shown little sign of growth this fiscal year despite the continued flow of federal recovery money, according to a new quarterly report from the Financial Oversight and Management Board for Puerto Rico, which warns that major fiscal challenges remain ahead.
The board reported that Puerto Rico’s Economic Activity Index fell 0.2% during the first nine months of fiscal year 2026 compared with the same period a year earlier, suggesting economic stagnation or a slight decline.
The findings come even as Puerto Rico continues to benefit from a massive influx of federal funds following hurricanes, earthquakes and the COVID-19 pandemic.
According to the report, more than $118 billion has been made available through major federal recovery programs, with about $62.2 billion already disbursed and another $56.2 billion still available for future projects.
The board said those funds have helped support economic activity and infrastructure rebuilding but warned that they may also be obscuring deeper economic weaknesses.
“An unprecedented influx of federal funds may be masking underlying weaknesses in the Puerto Rico economy,” the report said.
Among the challenges highlighted were labor shortages, slow population growth and low labor force participation. Puerto Rico’s labor force participation rate remained at 44.6% in the third quarter of fiscal 2026, significantly below the U.S. average.
The oversight board also reported that General Fund revenues totaled $9.3 billion through March, a decline of $313 million compared with the same period last year. Expenditures reached $7.6 billion, although officials said some costs had not yet been fully recorded in government financial systems.
Despite those challenges, the government’s main bank account, known as the Treasury Single Account, held $10.5 billion at the end of March. Most of that money, however, has already been committed to specific programs, reserves or legal obligations.
Looking ahead, the board expressed concern about what it called a potential Medicaid funding cliff beginning in 2028 if Congress does not approve additional federal aid. Puerto Rico could be forced to assume a substantially larger share of healthcare costs, creating billions of dollars in additional fiscal pressure.
The report also warned that future fiscal stability could be threatened by rising healthcare expenses, tax-cut proposals, disaster recovery costs, public pension obligations and other spending pressures.
Even so, the board said Puerto Rico is not currently facing an economic downturn. Instead, it described the island as entering a period of slower growth in which the success of reconstruction projects, workforce development efforts and federal funding programs will play a key role in shaping the economy’s future.
The report estimates Puerto Rico’s population at roughly 3.1 million residents and projects it could decline by about 18% over the next three decades if current demographic trends continue.
