Between this and next fiscal year, the COVID-19 pandemic will cost the Puerto Rican economy some $6.6 billion, an impact that will make Puerto Rico's debt unpayable, at least, as proposed in the adjustment plan, acknowledged yesterday Omar Marrero, the executive director of the Fiscal Agency & Financial Advisory Authority (FAFAA).
"To the extent that production continues to decline, there will undoubtedly be less revenue capacity and therefore less capacity to pay the debt," Marrero said.
The pandemic will lead General Fund revenues to drop by 13 percent this fiscal year. Since collections were increasing (close to the historic figure of $11.5 billion), the Treasury would compensate for the drop, and the government would have about $707 million to meet the payments to bondholders this fiscal year.
However, starting fiscal year 2021, there will be nothing left to pay bondholders. That year, despite the allocation of federal funds, according to the document, the government will have a $708 million deficit, followed by another $178 million in fiscal year 2022 and $89 million in 2023. By fiscal years 2024 and 2025, that is, after the next government completes its term, the Treasury would return to positive territory. But those surpluses would not go to bondholders either, and those numbers exclude the Sales Tax Financing Corporation (COFINA).
So far, the government supported the agreement with bondholders but opposed to pension cuts proposed by the Oversight Board.
"What we are saying is that, with the information we have now, this adjustment plan is not feasible," he said. "The adjustment plan has to be re-evaluated and potentially subject to substantial review."
FAFAA filed its revised fiscal plan before the Board at the stroke of midnight Sunday.
In filing the eleventh revision of the fiscal plan since this process began under PROMESA, the Wanda Vázquez Garced administration - who in August was in line with the Board's agenda - stated that what was negotiated with bondholders "is not feasible."
FAFAA based this on a regression model that considers several variables, including the sharp drop in employment as a result of the pandemic.
"We were very aggressive"
In stating that the pandemic will transform the entire economy and, therefore, the Treasury, Marrero admitted that Ricardo Rosselló Nevares' administration was too optimistic with the fiscal reforms it had proposed.
"The reality is that understanding now how complex these measures can be, we were very aggressive in projecting savings that would be difficult to achieve," Marrero said.
Marrero said that the fiscal plan contemplates that the government adopts those reforms that benefit economic activity, such as teachers' and police officers' contributions to Social Security and the implementation of the Earned Income Tax Credit (EITC).
Meanwhile, the government will seek savings in its budget through administrative "efficiencies," excluding among those strategies the reduction of personnel and the consolidation of agencies. In the February 28 version, the fiscal plan estimated that agency consolidation and payroll adjustment, among other measures, would leave savings of $7.801 billion. The plan filed Sunday establishes that “administrative efficiencies" would achieve savings of some $5.928 billion, that is, some $1.873 billion less than projected at the beginning of the year.
The plan contemplates providing financing to municipalities for two years, as well as more funds for education, health, public safety, and the University of Puerto Rico.