Standard & Poor’s last week announced that an estimated $3.2 billion deficit in Puerto Rico’s current budget will not affect its credit rating in the near term.
On Dec. 19, a special fiscal advisory board released its findings and stated that declining revenues and shortfalls in agency budgets have increased the commonwealth’s structural deficit to $3.2 billion.
Governor-elect Luis Fortuño formed the committee shortly after winning the gubernatorial election on Nov. 4 to help assess the government’s finances. The panel will release its recommendations by Jan. 12.
The $3.2 billion estimate is larger than the current administration’s budget calculations. In mid-November, officials pegged the deficit at $2 billion, up from the $1 billion budget shortfall at the start of fiscal 2009.
Standard & Poor’s and Moody’s Investors Service rate Puerto Rico BBB-minus and Baa3, respectively, both with a stable outlook.
While current legislation requires the commonwealth to end structural imbalances by fiscal 2010, Standard & Poor’s rating takes into account that the fiscal 2010 deadline may be difficult to achieve.
“We anticipated structural imbalance persisting,” according to a credit report. “However, in our opinion, the drastic increase in the size of the structural deficit for fiscal 2009 may require the implementation of an even stronger set of fiscal and administrative measures to preserve credit stability in the near term.”
Current Gov. Anibal Acevedo Vila’s last three operating budgets incorporated zero-growth spending, but to decrease the growing deficit, the incoming administration will need to cut spending even further or implement new or additional tax measures. However, such initiatives are difficult to enact.
“While [Fortuño] will enjoy a considerable majority in the Legislature, we expect that narrowing the budget deficit will require sweeping revenue and expenditure measures, some of which may be politically unpopular,” according to Standard & Poor’s.
Moody’s analyst Emily Raimes said that while the incoming administration has many challenges ahead, the $3.2 billion deficit announcement will not prompt a rating change in the near-term.
To help with cash-flow needs, the Government Development Bank for Puerto Rico on Dec. 22 sold in the local market $1.23 billion of medium-term bonds. Retail investors purchased for more than $835 million of the debt while institutional investors took $395 million.
UBS Puerto Rico, Santander Securities Corp., and Popular Securities are the three co-lead underwriters.
