SAFEGUARDING PUERTO RICO S FUTURE FISCAL STABILITY AND ECONOMY

Transcription

1 SAFEGUARDING PUERTO RICO S FUTURE FISCAL STABILITY AND ECONOMY Gerardo Portela, Executive Director, Puerto Rico Fiscal Agency and Financial Advisory Authority

2 RESTORING TRANSPARENCY AND INVESTOR CONFIDENCE IN PUERTO RICO HAS BEEN A PILLAR OF THIS ADMINISTRATION The Administration has focused its efforts on building the foundations for sustainable economic growth by enacting laws that promote strong fiscal discipline and pave the way for the implementation of structural reforms. Fiscally Responsible Administration Ordered 10% FY17 budget cuts from government agencies. Initiated zero-based budgets starting in FY18. Created AAFAF to implement and comply with PROMESA and the Certified Fiscal Plan. Adopted measures for enforcing collection of sales taxes. Adopted legal framework to reorganize government entities, functions, and services. Spearheading Economy & Infrastructure Rebuilding Provided an expedited process for approval of critical infrastructure projects. Strengthened the P3 legal framework to facilitate critical infrastructure investments. Approved sweeping labor and permits reforms. Created InvestPR to promote economic development and attract investment. Created the DMO to promote Puerto Rico as a tourism destination.

3 The New Fiscal Plan encompasses the devastation caused by Hurricanes Irma and Maria as well as the most recent facts and assumptions underlying disaster relief assistance and private insurance claims proceeds and their impact on the economy The FOMB approved the Certified Fiscal Plan covering a 10-year period on March 13, Thereafter, the Government began implementing the proposed initiatives to achieve structural balance by FY20. In the aftermath of the hurricanes, the FOMB directed the Government to revise the Certified Fiscal Plan. The New Fiscal Plan is built upon the pillars of fiscal and structural reform with the main objectives of revitalizing the economy and critical infrastructure. Devastated Puerto Rico Air Worldwide, a global leader in catastrophic risk modeling, estimates that the infrastructure and economic damages correspond to a catastrophe that happens once every 250 to 1,000 years. Altered Macroeconomic Outlook The Hurricanes had a significant negative impact on the economy; however, disaster relief assistance outlays in the coming years will help rebuild the infrastructure destroyed by the storms and provide a foundation for economic renewal.

4 Transformative Moment in History Build Back Better represents a bold and innovative vision on how the Government will rebuild portions of the Island s infrastructure, housing, and economy in a way that makes Puerto Rico stronger, better, and more resilient. 1 Puerto Rico established the CRRO to manage the reporting and use of recovery funding with stringent controls. A Critical Path Forward Fiscal reforms, such as implementing the New Government Model and improving tax collections, will help achieve cost efficiencies and enhance revenues. A comprehensive package of structural reforms, such as energy, welfare, and tax reform, will be implemented. External Help is Critical Obtaining financial support from the Federal Government is vital to rebuilding Puerto Rico and to continue providing core services while the Government implements its transformational strategy. 1 Build Back Better Puerto Rico, Request for Federal Assistance for Disaster Recovery November 13, 2017.

5 MACROECONOMIC FORECAST Draft Fiscal Plan vs Fiscal Plan Puerto Rico Nominal GNP Growth A 1.34x fiscal policy multiplier is used for GNP projections based on evidence of fiscal spending in US regions and consistent with the 2017 Fiscal Plan ,2% 5,1% 3,8% 3,3% 3,5% 0,3% 1,0% FY18 revenue decline of (19.8%) is based on (9.2%) GNP decline and an elasticity of 2.16x. (9,2%) (2,8%) (2,4%) (0,5%) (0,4%) Cumulative Growth: Draft FP: 16.7% 2017 FP: (4.8%) Disaster spend and insurance proceeds along with accelerated structural reforms in the Draft Fiscal Plan, will have a positive impact to growth starting in FY19. Draft Fiscal Plan 2017 Fiscal Plan

6 DISASTER RECOVERY FUNDING Total external disaster recovery funding will be a combination of FEMA Public Assistance, Individual Assistance, Supplemental Appropriations, and Private Insurance claims. Additional Federal support in the form of increased funding for specific programs like Medicaid will also improve the quality of core services in Puerto Rico and accelerate the economic recovery. Increasing the percentage of recovery funding that stays in Puerto Rico will maximize its benefit to the economy. FEMA Public Assistance Federal Supplementals Private Insurance Individual Assistance = Total Disaster Relief $35.3bn $13.2bn $21.0bn $995m $70.5bn

7 CASH FLOW POST-MEASURES By FY23 the accumulated surplus is $3.4bn ($mm s) FY18 FY19 FY20 FY21 FY22 FY23 REVENUE PRE-MEASURES EXPENSE PRE-MEASURES COMPONENT UNITS INCREMENTAL FISCAL MEASURES CASH FLOWS (PRE-COST SHARE AND TITLE III EXPENSES) OPERATIONAL CASH FLOW (POST-COST SHARE AND TITLE III EXPENSES) Component units are legally separate from the Government, but are discretely presented as component units in the Government s financial statements.

8 Government transformation and better revenue management is expected to yield annual benefits of $3.4bn by FY23 New Government Initiatives Objective FISCAL MEASURES IMPACT ($mm s) 1 NEW GOVERNMENT MODEL New Government Model is the blueprint for the optimization of government agencies and services, while improving the quality of services offered. FY18 FY19 FY20 FY21 FY22 FY PROCUREMENT REFORM 2 Build a centralized, transparent, and efficient procurement function that ensures best value for money by acting as a single customer, rather than separate entities, when buying goods and services All measures reflect gross savings. Estimated total net costs to implement are $223mm over the six year period. 2. Third party consultants are currently conducting a thorough analysis of all applicable expense categories. Estimated savings will be updated and are anticipated to be higher than current estimates.

9 New Government Initiatives Objective FISCAL MEASURES IMPACT ($mm s) 1 REDUCTION OF APPROPRIATIONS Reduce appropriation levels for UPR and Municipalities, while revamping Tax Incentives, will stimulate the necessary adjustments and lower dependency from the Central Government. FY18 FY19 FY20 FY21 FY22 FY NEW HEALTHCARE REFORM By streamlining policy and institutionalizing controls, healthcare expenses will be reduced and benefits optimized TAX COMPLIANCE AND FEES ENHANCEMENT Enforcement of tax compliance measures is the main Government lever to increasing revenues while not raising taxes TOTAL All measures reflect gross savings. Estimated total net costs to implement are $223mm over the six year period.

10 STRUCTURAL REFORMS Draft Fiscal Plan vs Fiscal Plan Through FY23, the Draft Fiscal Plan assumes a significantly higher impact from the accelerated implementation of the structural reforms An accelerated implementation timeline of structural reforms is a key driver of the variance between the GNP forecast in the Draft Fiscal Plan and the 2017 Fiscal Plan. The 2017 Fiscal Plan assumed 100bps of growth from structural reforms in FY23 while the Draft Fiscal Plan assumes 205bps of growth, an increase of 105bps. Draft Fiscal Plan Impact of Structural Reforms Private Sector Labor / Welfare Reform PPPs / Energy Reform 0.30 Doing Business Reform Tax Reform 0.25 Total New Fiscal Plan Cumulative New Fiscal Plan Real GNP growth without fiscal policy or structural reforms (14.25%) 6.11% 1.94% 0.21% (0.24%) (0.37%) Structural reforms 0.80% 1.80% 2.05% 2.05% Real GNP growth without fiscal policy (14.25%) 6.11% 2.74% 2.01% 1.81% 1.68% Fiscal Policy 3.24% 2.34% 0.74% 0.33% 0.02% 0.39% Real GNP growth (11.01%) 8.45% 3.49% 2.35% 1.83% 2.08% The 2017 Fiscal Plan assumed 100bps of structural reforms by FY23 vs 205bps contemplated in the Draft Fiscal Plan

11 Implementing an integrated financial management function is a key component to enhancing transparency FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY GOVERNOR OFFICE OF THE CHIEF FINANCIAL OFFICER P3 Authority * CENTRAL RECOVERY AND RECONSTRUCTION OFFICE Current Situation Fiscal Agent & Debt Management Accounting & Financial Reporting Grants Management Puerto Rico s central financial management functions are currently dispersed across various agencies and further fragmented at the agency level. Fiscal Plan Implementation, Compliance and Oversight Fiscal Plan Reporting Budget & Financial Planning Financial Controls & Centralized Treasury Project Formulation Cost Analysis Management Interface with FEMA Proposed Solution Consolidate most central financial management functions and agency financial operations to provide greater uniformity and accountability. Liaison with FOMB *To be named PR Revitalization Authority once reorganization plan is implemented. Financial IT Systems Insurance & Risk Management P3 Program Capital Expenditures Delivery

12 We are OPEN for BUSINESS