By The Star Staff
As Puerto Rico makes its way out of bankruptcy, the Financial Oversight and Management Board on Wednesday announced that its members certified the new Fiscal Plan for Puerto Rico, the blueprint for the fiscal operations of the government that will focus on economic growth and civil service reform.
“The restructuring of Puerto Rico’s massive debt is largely behind us, and our sole focus now is on cementing fiscal responsibility and working with the Government in creating a solid foundation for economic growth,” said the oversight board’s executive director, Robert F. Mujica. “Sustainable economic growth relies on responsible fiscal management and reforms that transform Puerto Rico’s education system, tax system, and its infrastructure. The new Fiscal Plan is a Transformation Plan that defines those reforms critical for Puerto Rico’s future and for the life of every resident.”
The “Transformation Plan” has three pillars: Strong financial management, with the implementation of a comprehensive financial management agenda; a culture of public-sector performance and excellence through the continued implementation of and investment in civil service reform; and investing for economic growth to ensure sufficient revenues to support the delivery of services the people need and deserve.
The Transformation Plan envisions partnering with the local and US government on their recently announced education reform agenda to find a new path for deploying the substantial financial resources in Puerto Rico effectively. The oversight board will be engaging with the government, leaders of Puerto Rico’s schools, educators, and nongovernmental organizations to draft an “Education Development Blueprint,” which will prioritize future fiscal plan investments to improve education outcomes. When adopted, the blueprint should achieve immediate and concrete results, Mujica said.
jThe oversight board executive director noted that over the past several years, the government has improved Puerto Rico’s tax system by implementing information reporting requirements and digitizing core tax processes. While much progress has been made, he said, significant reform is still required because Puerto Rico’s current tax system has historically suffered from complexity, instability and inconsistency.
The Transformation Plan calls for a comprehensive review of Puerto Rico’s revenue structure as part of a tax reform to improve Puerto Rico’s income tax structure for individuals and corporations. The government must continue its efforts to reduce the tax system’s complexity, enhance equity, increase transparency, reduce tax administrative and compliance cost, and maintain, if not enhance, revenues, Mujica said.
Any potential reform must be fiscally balanced, which is why the oversight board continues to require that all legislative proposals, including a tax reform, be revenue neutral over the long term, he said.
Given heightened levels of competition in the global marketplace, Puerto Rico needs to further improve its business friendliness to support economic growth, the official said, noting that there has been some progress in improving important elements of the business climate, including reducing the time required to register a property and making Puerto Rico more attractive for investments. Significantly more work needs to be done to improve the ease of doing business, including streamlining the regulatory environment and making the permitting process more efficient, and reducing occupational licensing, Mujica said.
Noting that Puerto Rico’s economy has continued its recovery, the official said the island’s low labor force participation has improved, though it remains below other U.S. states. Unemployment is at historically low levels, he added.
“Puerto Rico has made significant progress in the transformation of its energy system and the Government has successfully advanced the Public Private Partnerships that have helped move Puerto Rico forward,” Mujica said. “The power sector and business reforms defined in the Fiscal Plan are projected to increase Puerto Rico’s gross national product (GNP) by 0.60% by fiscal year 2026.”
The unprecedented influx of one-time federal funds has further strengthened Puerto Rico’s economy, but those funds mask underlying persisting weaknesses in long-term economic growth, Mujica pointed out. Puerto Rico’s underlying real GNP, excluding federal disaster and stimulus funds, has not yet returned to fiscal year 2016 levels, he said. The Fiscal Plan projects a 0.7% decline in real GNP for the current fiscal year 2023, followed by a period of near-zero real growth in the coming fiscal years 2024 to 2026. Puerto Rico’s population is estimated to continue the long-term trend of steady decline, he noted.
“However, with the right choices by the Government, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity,” Mujica said.
The Fiscal Plan projects strong government revenue collections for the current fiscal year 2023 and the coming fiscal year 2024 driven by the aforementioned unprecedented stimulus funds. However, government revenue is projected to return closer to its historic trend from fiscal year 2025 onwards, in line with the projections of most U.S. mainland states, the official noted.
“The U.S. Government has allocated an unprecedented amount of recovery and stimulus funds that are estimated at over $120 billion for Puerto Rico,” Mujica said. “Puerto Rico needs and deserves this support as a matter of fairness and equity. However, this support comes with expectations – expectations of responsibility, progress, excellence, and performance. The Oversight Board will continue to work with the Government to meet those expectations. Continued improvement of the financial management institutions is of paramount importance.”
For Puerto Rico to succeed and the economy to improve long-term, every fiscal decision, every reform, and every initiative must be focused on creating jobs, opportunity, and on supporting economic development, the oversight board director said, emphasizing the need for “a singular focus on growth.”
“The current economic recovery may slow if underlying challenges of Puerto Rico’s economy take hold, which is why the steps taken now are critical to prevent Puerto Rico from falling back into crisis and instead create a real foundation for sustainable growth,” Mujica said. “We will work with the government to strengthen the overall economy, to improve the education system, tax reform, ease of doing business, the transformation of Puerto Rico’s infrastructure, and the continued effort to reform the way government operates, which are essential elements for the prosperity of the people of Puerto Rico.”