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Puerto Rico's governor Ricardo Rosselló projected his bankrupt, hurricane-ravaged U.S. territory will carry budget gaps for the next four fiscal years, leaving nothing to pay back the island's $72 billion in bond debt until fiscal year 2022.
Rosselló made the projections in a revised fiscal turnaround plan released overnight on Thursday.
The plan assumes a minimum of $35.3 billion in federal aid to help the island recover from Hurricane Maria – which devastated Puerto Rico in September – through the U.S. Federal Emergency Management Agency's (FEMA) public assistance program.
A previous turnaround plan, approved by Puerto Rico's federally appointed financial oversight board last April, had projected $800 million a year for debt repayment, roughly a quarter of what it needs annually. That was before Maria slammed Puerto Rico, killing dozens, cutting power to all 3.4 million residents, and damaging and destroying tens of billions of dollars in housing.
The new plan projects that Maria will spur increased inflation and nearly triple a contraction in gross national product this fiscal year, as well as drive some 600,000 more people from the island in the next five years.
That outlook led to a projected annual budget gap of around $8 billion, Rosselló said at a roundtable with reporters on Wednesday. The government whittled that gap down to between $2 billion and $3.5 billion, through reforms like subsidy cuts to towns and the University of Puerto Rico, measures to boost tax collection, improvements to government procurement, and the streamlining of public agencies.
A small surplus is seen for the first time in fiscal 2022.
"One of the main pillars of the fiscal plan is that we achieve structural balance by fiscal 2022," Rosselló said.
The figures will likely change. The island's oversight board can request tweaks and must approve a final version by late February.
The $35.3 billion minimum projection by Rosselló for federal disaster aid is derived from FEMA's public assistance program, which provides money to governments for debris removal, life-saving measures and public facility repairs.
Rosselló said the projection was based on FEMA's own estimates and that the program "has been legislated and has never been underfunded."
The governor is seeking a total of $94 billion in federal aid, though the latest disaster aid package currently under discussion in the U.S. Congress is much smaller.
Even before Maria, Puerto Rico was reeling under $120 billion in combined bond and pension debt and a poverty rate around 46 percent. It filed the largest municipal bankruptcy in U.S. history last May.
Although creditors are expected to take dramatic repayment cuts in the bankruptcy, they may balk at the prospect of no payment for five years.
Puerto Rico's benchmark 2035 general obligation debt, which trades like an equity given that it is in default, last traded at 27.495 cents on the dollar. The bond was issued in 2014 with an 8 percent coupon.
In an interview with Reuters on Wednesday, Natalie Jaresko, the executive director of the oversight board, downplayed the significance of a potential budget gap, stressing the importance of long-term structural changes like labor reform.
At the time of the interview, Jaresko said she had not seen the plan, but that even if no money were available to pay debt for five years, "that doesn't mean there's not money available in years six through 30."
"I know your readers are the creditors," she said, "but for them, for all stakeholders, for people who live on this island and want to see jobs and better education and better healthcare results, the structural reforms are equally if not more important."