(Bloomberg) -- Puerto Rico can avoid budget deficits for the next quarter century because federal funds will help boost economic growth on the island as it exits bankruptcy, the commonwealth’s congressionally appointed financial oversight board said.
The board Thursday is set to approve a revised multi-year fiscal plan that incorporates federal funds Congress approved in the last year and a new pension reserve trust that will help ease stress on the island’s budget. Those changes mean the commonwealth won’t face potential budget deficits until fiscal 2048, according to Natalie Jaresko, the board’s executive director. Earlier estimates pegged deficits to begin in fiscal 2036.
The updated fiscal plan follows U.S. District Court Judge Laura Taylor Swain’s approval on Jan. 18 of Puerto Rico’s debt restructuring plan. That decision allows the island to begin exiting its more than four-year bankruptcy process just as it’s set to receive more than $40 billion in federal funds in the coming years.
“This is the greatest opportunity that Puerto Rico’s ever had to ensure long term, medium term sustainable growth,” Jaresko told reporters Wednesday. “And the board’s fiscal plan is the road map for this.”
The updated fiscal plan includes payments to bondholders starting in the current fiscal year. That’ll be a first for Puerto Rico since defaulting on its general obligation debt in 2016.
It also incorporates Puerto Rico directing $10.3 billion during the next 10 years to a new pension reserve trust. That new fund will ease future commonwealth budgets as the island spends about $2.3 billion annually to cover benefits to public workers because the retirement fund is depleted.
“That pension trust provides predictability to the budget long term and without it the government would fall into deficits,” Jaresko said. “With it, the government does not until 2048.”
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