The Economy of Puerto Rico
Presentation to the Puerto Rico Association for Financial Professionals
Jim Orr
Research and Statistics Group
October 24, 2014
Puerto Rico
 Key features of the economy
–
–
–
–
Bi-lingual, well-educated labor force
Central location in the Caribbean
Dollar economy with strong links to the U.S. mainland
Host to numerous U.S. multinational corporations
Figure 1. Real GNP Growth in Puerto Rico and the United States
Percent
Percent
10
10
8
8
Puerto
Rico
6
6
United
States
4
4
2
2
0
0
-2
-2
-4
-4
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
Sources: Puerto Rico Planning Board; U.S. Bureau of Economic Analysis.
Note: Puerto Rico GNP is on a fiscal year basis; U.S. GNP is on an annual basis.
2011
2014
Figure 2. Real GNP Per Capita: Puerto Rico
2013 $U.S. thousands
25
20
15
10
1969
1973
1977
1981
1985
Source: Puerto Rico Planning Board.
1989
1993
1997
2001
2005
2009
2013
Figure 3. Economic Activity Index: Puerto Rico
Index (Jan1980 = 100)
160
155
150
145
140
135
130
125
120
2001
2003
2005
2007
Source: Government Development Bank for Puerto Rico.
2009
2011
2013
Figure 4. Trends in Puerto Rico’s Payroll Employment
Thousands
Thousands
360
750
700
320
Private Employment
650
Government Employment
280
600
550
2002
240
2004
2006
Source: Bureau of Labor Statistics.
Note: Data are seasonally adjusted.
2008
2010
2012
2014
Figure 5. Unemployment Rate in Puerto Rico and the United States
Percent
30
25
20
Puerto Rico
15
10
5
United States
0
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
Source: Bureau of Labor Statistics.
Notes: Data are seasonally adjusted; shading indicates periods designated recessions (mainland)
by the National Bureau of Economic Research.
Figure 6. Population of Puerto Rico
Thousands
4000
3750
3500
3250
3000
2750
2500
1969
1973
1977
1981
Source: U.S. Census Bureau.
1985
1989
1993
1997
2001
2005
2009
2013
Figure 7. Debt-to-Income Ratio: Puerto Rico
Debt/GNP (percent)
120
100
80
60
40
20
0
2000
2002
2004
2006
2008
2010
2012
Sources: Office of Management and Budget; Commonwealth’s Comprehensive Annual Financial
Report; 2014 Series A Bond Prospectus.
Note: Total government debt is shown as a percentage of annual GNP.
Figure 8. Trends in Puerto Rico’s Government Balance1
$U.S. Billions
FY 2000
FY 2005
FY 2010
FY 2011
FY 2012
10.8
10.8
13.7
13.6
15.2
15.2
15.5
15.5
15.8
15.8
9.7
9.2
0.5
16
15.3
0.7
17.6
16.3
1.3
17.4
15.8
1.6
19.1
17.4
1.7
Net interfund transfers 4
-1.6
0.5
0.3
0.2
0.2
Primary fiscal balance5
0
-1.2
-0.8
-0.1
-1.4
Fiscal balance6
-0.5
-1.9
-2.1
-1.7
-3.1
GNP7
41.4
54.9
64.3
65.7
68.7
Revenues 2
Non-interest revenues
Total expenditures 3
Non-interest expenditures
Interest expenditures
Primary balance/GNP (%)
0.0
-2.2
-1.2
-0.2
Sources: Comprehensive Annual Financial Report (CAFR) 2011-2012, p. 286. GNP is from Economic Report to the
Governor, 2013.
-2.0
1 The
scope of government shown here is the "primary government" as defined in the FY 2012 CAFR, which includes the
central government and certain blended component units, notably including COFINA and the PBA, but excluding the
public corporations like PREPA and PRASA.
2 Includes
taxes, charges for services, intergovernmental revenues, interest and investment earnings, and other. Excludes
proceeds from debt issues.
3 Includes
current expenditures and capital outlays and excludes amortization payments.
4 Computed
from "Transfers in” minus “Transfers out" on p. 286 of the CAFR; here it is treated as a net revenue item.
5 Non-interest
6 Primary
revenues minus non-interest expenditures plus net interfund transfers.
fiscal balance minus net interest expenditures.
7 Updated
per Planning Board Revisions 2014.
Figure 9. Composition of Puerto Rico’s Public-Sector Revenues
6,778
Intergovernmental revenue
10,082
General revenue from own
sources
Public enterprise revenue
9,650
Sources: Office of Management and Budget; Commonwealth’s Comprehensive Annual Financial
Report; 2014 Series A Bond Prospectus.
Note: Revenues are in millions of dollars.
Figure 10. Revenues: Puerto Rico Compared with the States and Washington,
D.C.
Percentile of States
and D.C.
25th
50th
75th
Puerto Rico
Puerto Rico rank
(1) State Tax Revenues
as Percentage of Aggregate
Income
7.8
8.7
9.6
14.0
2/52
(2) Total State Revenues
as Percentage of Aggregate
Income
20.4
22.9
26.1
38.6
1/52
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; Census of Governments, 2012; U.S. Bureau of Economic Analysis.
Note: Gross national product is used for Puerto Rico and gross state product is used for the states
and Washington, D.C.
Figure 11. Composition of Puerto Rico’s Outstanding Debt
Puerto Rico: General Government Debt1
As of December 2013
$U.S.
Billions
Percent of
Total
General obligation and/or full faith and credit debt 2
15.8
22.0
COFINA
Municipalities and other
15.6
13.2
21.7
18.4
Tax revenue anticipation notes
Public corporations and agencies
1.1
26.2
1.5
36.4
Total
71.9
100.0
Sources: March 2014 Series A Prospectus, p. 33; public corporation debt is sourced from Quarterly
Report dated February 18, 2014, p. 36.
1 In
March 2014, Puerto Rico issued $3.5 billion of debt securities. After refinancings and
deductions, total debt rose to $72.8 billion.
Debt payable from revenues from “internal sources,” that is, income taxes, is guaranteed by the
Puerto Rican constitution.
2
Figure 12. 2012 Debt: Puerto Rico Compared with the States and Washington,
D.C.
Percentile of States
and D.C.
25th
50th
75th
Puerto Rico total debt
Puerto Rico rank
(1) Total State/Local Debt
as Percentage of Aggregate
Income
13.7
16.8
19.5
100.7
1/52
(2) Federal and State/Local Debt
as Percentage of Aggregate
Income
83.9
94.1
100.9
100.7
14/52
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; Census of Governments, 2012; U.S. Bureau of Economic Analysis.
Note: Gross national product is used for Puerto Rico and gross state product for the states and
Washington, D.C.
Figure 13. 2012 Revenues: Puerto Rico and Other Economies
Percentile of
30 Nations
25th
50th
75th
Puerto Rico
Puerto Rico rank
(1) Total Revenue
as Percentage of GDP,
Advanced Economies
34.6
40.8
46.8
38.6
19/31
(2) Total Revenue
as Percentage of GDP,
Emerging Economies
22.1
26.3
35.6
38.6
5/30
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; International Monetary Fund.
Note: Gross national product is used for Puerto Rico and gross domestic product for the others.
Figure 14. 2012 Expenditures: Puerto Rico and Other Economies
Percentile of
30 Nations
25th
50th
75th
Puerto Rico
Puerto Rico rank
(1) Total Expenditure
as Percentage of GDP,
Advanced Economies
40.8
44.0
47.2
50.1
6/31
(2) Total Expenditure
as Percentage of GDP,
Emerging Economies
24.3
30.5
38.2
50.1
1/30
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; International Monetary Fund.
Note: Gross national product is used for Puerto Rico and gross domestic product for the others.
Figure 15. Debt Burdens in Advanced Economies Including Puerto Rico
250
Percent of Annual GDP
200
150
100
50
0
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; International Monetary Fund.
Note: Gross national product is used for Puerto Rico and gross domestic product for the others.
Figure 16. Debt Burdens in Emerging-Market Economies Including Puerto Rico
120
Percent of Annual GDP
100
80
60
40
20
0
Sources: Government Development Bank for Puerto Rico; Commonwealth’s 2012 Comprehensive
Annual Financial Report; International Monetary Fund.
Note: Gross national product is used for Puerto Rico and gross domestic product for the others.
Figure 17. Municipal Single-State GO Spreads to U.S. Treasury
Basis points
Basis points
800
300
PR GO 10yr
700
200
600
IL GO 10yr
500
100
MI GO 10yr
400
0
300
AAA GO 10yr
200
Aug-12
Feb-13
Source: Thomson Reuters.
Note: GO is general obligation.
-100
Aug-13
Feb-14
Steps to improve fiscal outcomes and restore
access to low-cost credit
 Step 1: Reinvigorate efforts to raise economic growth
 Step 2: Reform the Commonwealth’s tax system
 Step 3: Improve the Commonwealth’s financial
reporting
Steps to improve fiscal outcomes and restore
access to low-cost credit
 Step 4: Strengthen performance and harden budget
constraints for public-sector corporations
 Step 5: Adopt a capital budget and binding balancedbudget rule for the central government
 Step 6: Adopt a legislative framework requiring
multiyear budgeting, specific fiscal targets, and
monitoring mechanisms to help ensure those targets
are met