GAO report highlights island’s 78% debt cut
By The Star Staff
The U.S. Government Accountability Office (GAO) noted the 78% reduction in debt obligations resulting from the commonwealth’s restructuring plan, a Fiscal Agency and Financial Advisory Authority press release said.
Puerto Rico’s gross domestic product was $106.5 billion as of June 30, 2021. In March 2022, Puerto Rico finalized its most significant debt restructuring: issuing $7.4 billion in new bonds replacing $34.3 billion in outstanding bonds, a 78% reduction. The restructuring also contained several initiatives to reform Puerto Rico’s struggling pension system, including a new trust fund -- financed by government surpluses -- to support future pension payments. Finalizing the overhaul of electric and power operations and adhering to fiscal and financial management reforms are critical to sustained economic growth, the GAO report said.
“This most recent restructuring is a significant step in its recovery from the fiscal crisis and represents the largest municipal debt restructuring in U.S. history,” the report said. “The general obligation restructuring adds to other component debt restructurings completed in recent years, resulting in a total $34.5 billion (55 percent) reduction in outstanding debt.”
The completion of the debt restructurings means that the cost to Puerto Rico to service the current debt outstanding -- interest and principal payments -- is significantly lower, dropping from 25% of revenue before the enactment of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, to 6.1% in 2022. This cost -- now about $1.15 billion annually -- is fixed through 2049.
The report on U.S. territories’ public debt has highlighted the successes and challenges in Puerto Rico’s fiscal and economic recovery. The challenges include the restructuring of the Puerto Rico Electric Power Authority’s debt and the transformation of the electricity system, as well as the continued implementation of structural and fiscal reforms in areas such as debt management, and the timely publication of financial reports, the release added.
Regarding other U.S. territories, Guam’s economy is showing signs of recovery, as the opening of the third U.S. military base there is expected to foster economic growth, the report said. The U.S. Virgin Islands’ March 2022 bond refinancing temporarily extended pension solvency, the report said, while the Northern Mariana Islands economy continues to decline, its financial management and reporting have worsened, and the commonwealth is “at risk of a severe fiscal crisis,” the report added.