By Nick Brown
(Reuters) - Puerto Rico's governor projected his bankrupt, hurricane-ravaged U.S. territory will carry budget gaps for the next four fiscal years, requiring new liquidity and leaving nothing to repay the island's $72 billion debt until fiscal year 2022.
Governor Ricardo Rossello made the projections in a revised fiscal turnaround plan released in the early hours of Thursday.
The plan assumes a minimum of $35.3 billion in federal aid to help the island recover from Hurricane Maria, which devastated Puerto Rico in September, through the U.S. Federal Emergency Management Agency's (FEMA) public assistance program.
A previous turnaround plan, approved by Puerto Rico's federally appointed financial oversight board last April, had projected $800 million a year for debt repayment over the next 10 years. That was about a quarter of what the island owed in that time.
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But that was before Maria slammed Puerto Rico, killing dozens, cutting power to all 3.4 million residents, and destroying tens of billions of dollars in housing.
The new plan projects that the impact of Maria will spur increased inflation and nearly triple a contraction in gross national product this fiscal year, as well as drive some 600,000 more people from the island in the next five years.
That outlook turns what was formerly a projected $3.7 billion surplus through 2021 into a $3.4 billion gap in the same period.
That forecast is after accounting for steps to improve the island's fiscal health, including cuts in subsidies to towns and the University of Puerto Rico, measures to boost tax collection, improvements to government procurement, and the streamlining of public agencies.
The plan says Puerto Rico will need "external liquidity support" to maintain basic services, adding that "the availability of this funding source is a critical risk to ... the long term viability of Puerto Rico."
The figures may change. The island's oversight board, appointed to manage its finances and oversee its recovery strategy, said on Thursday it is reviewing the plan. The board can request changes and must approve a final version by Feb. 23.
Immediate reaction from stakeholders and analysts was measured. Bose George, a municipal bond insurer analyst at KBW Inc, said in a note on Thursday the five-year debt moratorium was "not surprising."
A source familiar with the restructuring told Reuters late Wednesday that "it would be a mistake to put any stock in" the governor's projections, which "will undoubtedly be revised again."
FEDERAL AID
The $35.3 billion minimum projection by Rossello for federal disaster aid is derived from FEMA's public assistance program, which provides money to governments for debris removal, life-saving measures and public facility repairs.
Rossello said the projection was based on FEMA's own estimates and that the program "has been legislated and has never been underfunded."
The governor is seeking a total of $94 billion in federal aid, though the latest disaster aid package currently under discussion in the U.S. Congress is much smaller.
Even before Maria, Puerto Rico was reeling under $120 billion in combined bond and pension debt and a poverty rate around 46 percent. It filed the largest municipal bankruptcy in U.S. history last May. In an interview with Reuters on Wednesday, Natalie Jaresko, the executive director of the oversight board, played down the significance of a potential budget gap, stressing the importance of long-term structural changes like labor reform.
At the time of the interview, Jaresko said she had not seen the plan, but that even if no money were available to pay debt for five years, "that doesn't mean there's not money available in years six through 30."
"I know your readers are the creditors," she said, "but for them, for all stakeholders, for people who live on this island and want to see jobs and better education and better healthcare results, the structural reforms are equally if not more important."
(Reporting by Nick Brown; Additional reporting by Rodrigo Campos; Editing by Daniel Bases, Leslie Adler and Frances Kerry)
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