Puerto Rico Board Said to See Big Jump in Long-Term Surplus

(Bloomberg) -- Puerto Rico’s federal overseers are poised to raise their forecast for the island’s budget surplus over the next four decades after an influx of aid and rebuilding from last year’s storm is expected to give a jolt to the economy.

The change will increase Puerto Rico’s cumulative surplus -- before any debt payments are made -- to more than $20 billion through 2058, up from $4 billion in the fiscal recovery plan certified by the board in June, according to people familiar with the matter.

The jump is likely to please the island’s creditors, who are fighting for a piece of Puerto Rico’s revenues as it makes its way through bankruptcy. Yet such long-term fiscal projections have proven to be especially volatile, and the new estimates will follow an admission that the board made a $4 billion error the last time it certified a fiscal plan.

Natalie Jaresko, the oversight board’s executive director, through a spokeswoman said the plan will be certified “in the coming weeks."

“The changes in the fiscal plan will come from new data in actual FY18 revenue and expense figures, budget to actuals, and disaster spending,” she said in a statement. She said the changes would result in improved revenue and cost projections. 

Better Recovery

The estimates will provide the latest signal that the island is recovering better than analysts initially expected from the blows of last September’s Hurricane Maria, which devastated its electricity system and triggered speculation that an economy mired in a long-running recession would worsen. Puerto Rico was already operating in bankruptcy and the storm caused its debt prices to tumble by threatening to leave the government able to repay even less of its approximately $70 billion of debt.

But since the storm, Puerto Rico and its federal overseers have redrawn the government’s fiscal plan and the projections several times to account for the influx of federal aid that’s expected to temporarily buoy the economy. The more sanguine outlook and the government’s progress toward cutting deals with some major creditors has triggered a rebound in the price of its debt, with its most frequently traded general-obligation bonds more than doubling this year.

The last fiscal plan, certified by the board on June 29, estimated that Puerto Rico would have a cumulative surplus of about $4 billion over the next 40 years, assuming the government implemented budget cuts among other moves. The new projection, incorporating higher than expected disaster aid and tax receipts, raises that figure to more than $20 billion, the people said.

The projections are closely watched by the island’s creditors, who see any projected surpluses as money that could possibly be paid out to them. While federal policy makers have tried to ensure that certain money, like disaster aid, won’t flow through to bondholders, some creditors believe that such aid frees up other money for their interests.

Sharp Swings

The board’s forecasts have also swung sharply over the past year as it battled with the Puerto Rico government over plans to reign in spending. In June, the oversight board sharply cut the projected surplus after the Puerto Rico government rejected proposed labor-law changes intended to make employers more willing to hire.

In August, the board sent a letter to Governor Ricardo Rossello, explaining that it planned to update the report with new projections. The board also said it discovered a forecasting error and that correcting it would reduce the projected 30-year surplus by $4 billion.

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