An Update on the Competitiveness of Puerto Rico’s Economy

Museum & Visits Regional Economy Data & Statistics Careers Blog Press Center

An Update on the Competitiveness of Puerto Rico’s Economy

In light of the rising fiscal pressures Puerto Rico faces, the New York Fed has undertaken this update of a 2012 report examining the competitiveness of the Island's economy.

Download full report

English | Español

Our Commitment

At the Federal Reserve Bank of New York, we are proud that Puerto Rico is part of the Second District, which we represent in the Federal Reserve System. We have a deep commitment to the people of Puerto Rico and to the future growth and prosperity of the Commonwealth. Our commitment is reflected in the ongoing work of our Outreach and Education teams with our many partners on the Island, and in the research conducted by our economists, who monitor local economic conditions and analyze issues that affect the Island’s economy.

Where Puerto Rico Stands

Economic activity in Puerto Rico remains generally flat at a depressed level and there are no strong signs that a meaningful recovery is taking hold. Recently, serious fiscal challenges have surfaced that are closely interrelated with the Island’s weak economic performance. In light of the rising fiscal pressures Puerto Rico faces, the Federal Reserve Bank of New York has undertaken this update of an earlier report that examined the competitiveness of the Island’s economy.

Challenges

In 2012, we highlighted some of the key challenges facing Puerto Rico’s economy. In this report, we revisit each of these challenges and discuss the progress made in several areas:

Improving Labor Market Opportunities
Developing Human Capital
Reducing the Costs of Doing Business
Mobilizing Finance for Business Development and Growth
Reducing Dependence on a Shrinking Industry

Fiscal Developments

In this report, we discuss the outlook for the sustainability of Puerto Rico’s debt and outline recent Commonwealth efforts to strengthen the Island’s public finances:

Rising Debt Levels and Market Access Concerns
Effects of Stress in Puerto Rico on Financial Markets
Government Efforts to Strengthen Public Finances

Steps toward Fiscal Sustainability

Puerto Rico has an opportunity to restore its fiscal health, but it needs to act. In the spirit of assisting the Commonwealth in this endeavor, we describe the steps required to improve fiscal outcomes and restore access to low-cost credit:

Reinvigorate efforts to raise economic growth
Reform the Commonwealth’s tax system
Improve the Commonwealth’s financial reporting
Strengthen performance and harden budget constraints for public-sector corporations
Adopt a capital budget and a binding balanced-budget rule for the central government
Adopt a legislative framework requiring multiyear budgeting, specific fiscal targets, and monitoring mechanisms to help ensure that targets are met

Key Data Points

Unemployment Rate - May 2014

13.8%

Puerto Rico

6.3%

United States

Real GNP Growth Rate - 2013

0.3%

Puerto Rico

1.9%

United States

Puerto Rico's Total Government
Debt-to-Income Ratio

2000

58.8%

2006

74.6%

2012

101.8%

Authors

This report was prepared by the project team of Jaison Abel, Jason Bram, Richard Deitz, Andrew Haughwout, and Thomas Klitgaard of the Research and Statistics Group; Hunter Clark, Tricia Kissinger, Jonathan Landesman, and Monica Sanz of the Emerging Markets and International Affairs Group; Javier Silva of the Communications Group; and Akash Kanojia of the Markets Group. The views expressed in this report are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of New York or the Federal Reserve System.

Blog

Just Released: Updated Study of the Competitiveness of Puerto Rico’s Economy Proposes Steps to Address the Island’s Fiscal Stress

Speech

Dudley: Update on Economic and Fiscal Conditions in Puerto Rico

2012 Report

Report on the Competitiveness of Puerto Rico’s Economy

Second District Highlights

The Causes and Consequences of Puerto Rico’s Declining Population