Puerto Rico's Exit from Bankruptcy Positive for Long-Term Economic Outlook

• The approval of a deal between Puerto Rico’s government and its bondholders has cleared the path for the territory to exit bankruptcy, which is expected will boost longer-term growth by freeing public funds and increasing investor confidence. 
• Puerto Rico’s reduced debt obligations will allow the government to increase spending in the coming quarters, and eventually allow it to access international capital markets. Greater fiscal flexibility will allow the territory to invest more funds into education and its relatively poor physical infrastructure, which will likely support longer-term growth. 
• The bankruptcy deal will also bolster investor sentiment. The instability of government finances has deterred fixed investment over recent years, as it created doubt about the quality of public services, social stability, and the future direction of fiscal policy, particularly tax levels. Growth is expected to average 0.7% from Fiscal Year (FY) 2022 to FY2031, on the assumption that the debt deal would be approved. 
• However, fiscal pressures may re-emerge in the years ahead, as the deal still commits the government to significant debt and pension repayments. This could force it to make unpopular spending cuts, which could spark public protests that undermine social stability. 
• Significant debt restructuring can meaningfully impact the growth and overall performance of Puerto Rico’s economy. The government’s fiscal discipline is paramount for the country’s growth potential amidst the bankruptcy concern.

 (Source: Fitch Solutions)