Underlying challenges to sustained growth remain
The end of Puerto Rico’s bankruptcy opens a path to recovery for the island’s finances and stands to bring limited new business opportunities, even as underlying economic challenges remain. Increased predictability and stability in the government’s finances will steadily expand B2G opportunities and new public investment activity, beyond the elevated federal funding inflows. Clients should work to capture new opportunities as they arise by partnering closely with local teams and partners. The reputational and practical benefits of exiting bankruptcy will also renew cautious private investment appetite in Puerto Rico, creating additional upside for B2B demand. In response, B2B firms should ensure their channels are positioned to capture new demand but also avoid price increases, as demand remains underlined by uncertainty.
Overview
On January 18, a US district court gave final approval to a deal between Puerto Rico and its debt holders that allows the island to exit its high-profile bankruptcy saga, which began in 2015. The deal substantially reduces Puerto Rico’s US$ 70 billion public debt, cutting annual debt repayments from US$ 3.9 billion to US$ 1.15 billion.
Our View
The bankruptcy deal address a fundamental source of economic disruption for Puerto Rico that has undermined government spending and growth. The development also comes as growth on the island is being buoyed by the inflow of federal reconstruction funds, new infrastructure spending, and a strong rebound in consumer spending. This puts Puerto Rico in a relatively strong position for growth for 2022; however, underlying challenges persist for the economy and will continue to dampen sustained economic growth without deeper reforms to attract investment.
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