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Study: P.R. faces ‘major’ challenges to achieve post-recovery economic growth

When Hurricane María dealt its devastating blow to Puerto Rico a year ago today, it did so at a point in time when the island’s economy had been in contraction since fiscal year 2007.

Twelve months later, Puerto Rico has several challenges it must face to achieve a “high and sustainable rate of economic growth after recovery efforts have been completed,” according to a study by local economic research firm Estudios Técnicos.

In its analysis of the “Balance of the Economy Post Hurricane María,” the firm stated that while the economy has rebounded, the expected real growth in Gross National Product will be temporary, given that it is feeding from an influx of recovery funds and insurance payments.

“The expected real growth in GNP will be temporary. Even with the growth rates of real GNP expected for fiscal years 2019 and 2020, under current scenarios it would not be until fiscal year 2026 when the level of real GNP would approach that of fiscal 2006,” when it reached some $7.4 billion, the study confirmed.

Damages from last year’s back-to-back storms, Irma and María, been estimated to range between $42.3 billion and $90 billion, the latter includes the U.S. Virgin Islands, which was also clobbered.

“The inflow of reconstruction funds is significant: more than $54 billion in federal recovery funds, and an additional $8 billion from private insurance. As of August 2018 it is estimated that the Federal Emergency Management Agency alone has disbursed or approved $8.1 billion in public and private assistance funding,” the study noted.

A large portion of the incoming funds are to be used in the 2018-2021 period when an average $8 billion will spent yearly. This will help generate a significant amount of economic activity, particularly in the construction sector, one of the worst hit with the contraction beginning in 2007, the firm predicted.

“There is no certainty with respect to the amount of federal funds, the period over which they will be spent, the uses to which they will be put and their impact. A major challenge for Puerto Rico is developing the capacity to effectively use the funds, since they represent various orders of magnitude greater than what our agencies and municipalities have handled over the years,” the study concluded.

To return the 2006 GNP level, Puerto Rico must also overcome another string of major hurdles, including the loss and aging of population, the federal tax reform, changing regional conditions and still unresolved issues related to the government’s debt.

Furthermore, there is the issue of increasing income inequality, which has drawn significant prominence in recent months.

“Dealing with inequality will require improvements not only on jobs but also on social programs, particularly education and health,” the firm noted.

Despite the trials ahead, Puerto Rico has opportunities especially with regards to the massive inflow of federal and insurance recuperation funds expected between fiscal years 2019 and 2028.

“They should provide a solid base not only for infrastructure reconstruction and building resilience…but also to set the foundations for sustained long-term growth,” Estudios Técnicos noted.

“Sustained growth and development will require measures that may impact certain groups. This is why a broadly shared vision of where we want the economy to be in 10 or 15 years is so necessary,” the firm assessed.

Comments (1)

  1. In May 2018, our firm H. Calero Consulting Group, Inc. published the only private sector study as of today on “How Hurricane Maria Forges Puerto Rico’s Economic Future”. The estimate of damages was $159 billion. The recent Government’s plan for reconstruction estimated $136 billion. Hence, damages are significant. Not all the Federal monies will be invested in Puerto Rico since there are many contracts from outside the Island. At best, we estimate a recovery period of 12 to 15 years. Solution: apply our conceptual model; revisit the Fiscal Supervisory Board’s role towards growth; focus on few but key strategic economic sectors, but, above all, be consistent in a long-term execution plan. Otherwise, outward migration will continue and others will own the Island.

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