Puerto Rican Governor Alejandro García Padilla plans to present Puerto Rico’s balanced budget plan a year early in response to the Switzerland-based financial services company UBS AG’s credit downgrade forecast.
“Given the myriad obstacles facing Puerto Rico, we believe that at least one rating agency will [downgrade Puerto Rico’s general-obligation bonds] within the next 30 days,” analysts Thomas McLoughlin and Kristin Stephens wrote in a report released last week.
The downgrade to junk status would limit demand for the commonwealth’s debt, as it would be below investment grade.
Meanwhile, the balanced budget plan, which the governor had pledged for 2016, will go into effect for the 2014-2015 fiscal year. The current administration has pledged to change pensions and raise taxes to help close the budget gaps. Details of the changes have not been released.
The announcement is expected to generate negative backlash from Puerto Ricans, who have seen the cost of commodities soar while nearly half the population lives under the poverty line. The passage of pension cuts in January led to a two-day teacher’s strike and a lawsuit filed by the Asociación de Maestros de Puerto Rico (Teacher’s Association of Puerto Rico) in Puerto Rico’s Supreme Court.
Governor García Padilla is expected to introduce the detailed budget in the coming weeks.