In the very near future, Puerto Rico is expected to run out of money. The island is facing a $13 billion shortfall over the next several years. Making matters worse, reports indicate that the Puerto Rican Treasury’s single cash account and Government Development Bank are expected to deplete their remaining available liquidity prior to the year’s end. This is extremely concerning, as Puerto Rico is essentially married to the dollar, and the island cannot print its own currency.
The Puerto Rican government plans to manage the issue by consolidating its education department, restructuring its Department of Economics Development, and establishing a fiscal oversight board. However, the public is not happy with the plan, as it will certainly affect the livelihood of many citizens. For instance, many government employees will have their salaries frozen, and transportation expenses are certain to increase resulting in rising prices throughout the island.
This news comes as only 40% of the working population is currently employed, and island pensions face unfunded liabilities that were more than $37 billion in 2013. However, the situation is so dire that reductions in spending must inevitably take place. It is unknown how exactly much debt will be able to be cut by reducing government spending. But things do not appear positive, as the government expects to run out of money by next May or June.
The plan to reduce spending will be difficult to put into action, as it will face heavy resistances from various unions and creditors who will try to cling to their current statuses. But with roughly $47 billion dollars of debt, there is very little Puerto Rico can do about the situation. Of that figure, $18 billion is due within the next five years. The budget gap is estimated to be $28 billion by the end of this time period. Reform measures can reduce this figure to roughly $13 billion.
It is the citizens of Puerto Rico who will suffer from a tightened budget. Negotiations with creditors are expected to be very difficult. Additionally, the education industry will be greatly affected. Action will be taken by closing schools, altering teacher pensions, and reducing subsidies to the University of Puerto Rico. Tax laws are also expected to be changed, and healthcare costs will be scrutinized.
However, the possibility of a bailout lingers. One proposal states that Puerto Rico should pressure the United States government for assistance. Unfortunately for Puerto Rico, a bailout is not expected to occur at the present time. But the situation could change if the Puerto Rican public responds aggressively to the proposed budget cuts. The issue could even come into play for the 2016 presidential election.