Moody’s: PR’s fragile economy faces new risks post-María
Limitations on the government’s capacity to operate electricity systems — as well as ports, water and sewer service and transportation
infrastructure — will hurt rate, fee and tax collections while also impeding commerce, Moody’s said.
The Commonwealth of Puerto Rico is facing new risks and economic uncertainty following the devastation caused by Hurricane Maria last week, Moody’s Investors Service concluded in a report released Tuesday.
“Details are still emerging from the Commonwealth, but any significant, long-term disruption of commerce will sap Puerto Rico’s already weak economy, depending on the duration of utility outages, receipt of aid funds, and longer-range demographic and out-migration repercussions,” Moody’s stated.
“However, federal relief funding in the wake of hurricanes Irma and Maria could offset some of Puerto Rico’s financial challenges and help spur renewed economic growth,” the agency added.
Moody’s expects Puerto Rico to benefit from substantial federal aid under the Stafford Act, including funds from the Federal Emergency Management Agency. The federal government will cover at least 75 percent of the cost of immediate response efforts, including debris removal emergency protective measures.
FEMA assistance helped Puerto Rico rebound from Hurricane Georges in 1998. Together with other governmental aid and insurance payments, these funds allowed for recovery and rebuilding after the storm that stimulated economic growth in Puerto Rico.
On Monday, Gov. Ricardo Rosselló asked the agency and Congress to consider waiving that 25 percent requirement on the island to cover the remaining costs.
“Given Puerto Rico’s weakened cash position and lack of capital market access, the territory’s government will face challenges to the extent that it needs to contribute it’s own funds toward recovery efforts,” Moody’s noted.
Puerto Rico’s massive and contentious debt restructuring under the Puerto Rico Oversight, Management and Economic Stability Act may influence how much funding Congress authorizes for relief efforts.
“How Puerto Rico’s widely known fiscal challenges will affect the allocation of federal relief funds is unclear. PROMESA contains provisions under which the oversight board can ask the U.S. government to accelerate disaster-related grants and loans to Puerto Rico,” Moody’s said.
The agency also discussed the hurricane’s potential harmful effects on the island’s already-fragile utilities.
If severe damage caused by Hurricane Maria leaves the Puerto Rico Electric Power Authority disabled for an extended period, the resulting revenue losses will be a negative credit factor for the utility.
“In addition, prolonged power loss would further undermine an economy that has been in recession for much of the past decade,” Moody’s said.
Meanwhile, the storm’s effects on the Puerto Rico Aqueduct and Sewer Authority remain unknown. The financial impact from the hurricane could also be substantial for the University of Puerto Rico and Sacred Heart University, which both have suspended classes and now face a “lost semester.”
“The institutions will forgo material tuition revenue if they are required to pay refunds or pay other institutions that accept their students as transfers,” Moody’s noted.
