Estudios Técnicos calls for economic strategy to reduce PR’s dependence on federal emergency funds

By THE STAR STAFF

Although federal funds have stabilized Puerto Rico’s economy since Hurricane Maria destroyed infrastructure in 2017 and then during the COVID-19 pandemic, the island government must develop an economic strategy that does not depend on emergency funds, according to the most recent financial publication, ETI Trends, from Estudios Técnicos Inc.

The impact of federal funds has been so significant in the last decade that in the fiscal year (FY) 2013 they represented 30.2% of Puerto Rico’s gross national product (GNP). For FY 2021 that percentage increased to 58.5%, after aid for the hurricanes and COVID-19. The federal funds include money received by individuals, government, public corporations, municipalities, the private sector and others, indicates ETI Trends, a report from ETI’s Economic Policy and Analysis Division.

“It is hoped that this magnitude of funds related to the pandemic will not continue. Already for fiscal year 2022, they [federal funds] decreased compared to 2021,” the report says, noting that in 2022 the percentage of federal funds fell to 50.8%, or a total of $39.7 billion.

“What remains are the funds that will be disbursed in the coming years, including CDBG-DR [Community Development Block Grant-Disaster Recovery], CDBG-MIT [Community Development Block Grant-Mitigation], and FEMA [Federal Emergency Management Agency], and programs unrelated to reconstruction. An example of these funds are those authorized by Congress for the Medicaid program (destined for the Vital Plan), to be distributed over the next five years,” the report says. “Four questions arise from this brief account: How does a reduction in federal funds impact Puerto Rico’s GNP? Do these funds contribute to improving social mobility and sustainable development? How to achieve sustainable development that is not dependent on federal funds? How to migrate to a development strategy centered on endogenous [internal] factors?”

The ETI report highlighted the following data:

• In FY 2021, according to the [Puerto Rico] Planning Board, individuals (government, public corporations, municipalities, the private sector, and others), received $42.8 billion in federal funds.

• This figure was 58.5% of nominal GNP (without discounting inflation), compared to 30.2% in FY 2013, and 38.0% in 2019.

• The absolute increase received in FY 2021 compared to 2019 was $15.9 billion, while the nominal GNP increased by $2.2 billion, showing extreme dependence on these funds.

• In FY 2022, total receipts decreased by $3.1 billion, $2 billion for individuals.

• Most individual allocations are Social Security and Medicare payments, representing 58.0% of that total. Those are funds to which there is a vested right because people pay for them. They represent 45% of federal funds received in FY 2022.

The impact of federal funds in Puerto Rico has been so significant that in fiscal year 2021 they represented 58.5% of Puerto Rico’s gross national product, after aid for the hurricanes of 2017 and 2022 and the COVID-19 pandemic, according to a report from Estudios Técnicos.