How Maria Forges PRs Future Assessment and Forecast An economy in - PowerPoint PPT Presentation

H.Calero Consulting Group, Inc. How Maria Forges PR’s Future Assessment and Forecast

An economy in recession… Real GNP growth, % High Moderate Negative 8.0% 0% -1.1% Source: PR Planning Board

… with investment going down Investment, $ billion and % of GNP Recession 30% $12.0 $8.3 22% $4.8 12% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Investment % GNP hcalero.com Source: PR Planning Board

Federal funds as a driving force $billion $14.2 20% 2% 13% $0.1 ‘16 1970 1980 1990 2000 2010 Net Transfers As % GNP Source: PR Planning Board

Trouble with public debt $ billion $ Sec. 936 99% ends 71% 56% 35% 2016 1970 1978 1986 1994 2002 2010 Debt Debt/GNP Source: PR Planning Board hcalero.com

The job challenge Low participation still a major problem Feb 2018 46.6% 10% 10.1% 40% 2000 2003 2006 2009 2012 2015 ‘18 Participation Unemployment Source: PR Department of Labor

Demographic time bomb in PR PR population, million 2005-2016, 000s 3.8 3.4 ��� 2.2 ��� ��� 6% 15% 20% 24% ���������� ����������� ��� ���� ���� ���� ���� ��������� 16’ ��� ������� Source: US Census Bureau

Recurrent fiscal deficits GF net revenues – GF budget, $ million 348 (64) (521) (3,180) 2000 2004 2008 2012 2017 2016 Source: PR Planning Board

Municipalities also with deficit Deficit FY 2016 Quebradillas Aguadilla a Dorado Cataño Isabela t e Toa n Vega San Loíza í o Camuy Manatí l e o Baja Baja C Arecibo c Vega Juan l r a l o i a n t r B Alta b o C a o Moca l H m a i a n Aguada Florida R n n a a Río Toa Alta Luquillo Fajardo i y n y Trujillo o c ó a a v San Grande n B u a Alto Morovis Corozal G n o Sebasti án t a Ciales i Añasco j n s a Lares r a N Utuado Aguas Gurabo 46 municipalities with deficit s o Ceiba Buenas c Las Marías Naguabo n Las Piedras u Orocovis Comerío Caguas J Mayagüez Jayuya Barranquitas 60% of 78 Adjuntas Cidra Humacao Maricao San Hormigueros Lorenzo Villalba Aibonito San Cayey Culebra s Coamo Germán a Sabana Yauco a l e l Cabo Ponce Yabuoca l Grande u i n Patillas ñ Juana a ñ Rojo Maunabo e y P a Díaz Arroyo u Lajas Santa Salinas G Guánica Guayama Isabel Vieques Surplus Deficit Source: OCAM

PR debt – The end game ����������� ������������� ����������� Source: Press

US takes action with PROMESA Restructure debt with Court � Approve fiscal plan & budgets � Obtain financial audited statements � Freeze or reduce pension benefits � Issue bonds � Review Acts of Legislature � Exclude 25yr old from min. wage � Subpoena powers � Prohibit public strikes � Establish new personnel system � Not subject to Judicial review �

A conceptual growth plan Investment opportunities Economic growth Key Tourism Manufacturing Agriculture Services Energy Ports Infrastructure Telecom Highways hcalero.com Source: HCCG

A dated infrastructure Electricity generation by source, 2017, % 4 17 45 % 20 bn kWh 34 Oil Gas Coal Renewables Source: PREPA

Untapped potential of tourism Visitor’s expenditures, $ million $3,985 6% 4% $234 1971 1979 1987 1995 2003 2011 ‘16 Visitor's expenditures % of GNP Source: HCCG hcalero.com

Manufacturing dominates in GDP but not in jobs, 2016 GDP Jobs 19% 1% 1% 7% 2% 3% 47% 9% 1m $105bn 36% 43% 24% 8% Agric/Min Constr. Mfg. Trade Services Gov Source: PR Planning Board, PRDLHR

Agriculture is dormant $ million 9.7% 164 0.8% 1960 1968 1976 1984 1992 2000 2008 2016 Agriculture % GDP Source: PR Planning Board hcalero.com

Higher education in transition Expense per university University enrollment trend by student, $ sector 160,109 $25,130 116,938 73,838 $17,099 67,146 '02 '04 '06 '08 '10 '12 '14 '16 2006 2010 2015 Public Private Source: PR Council on Higher Education

Healthcare keeps going up Government funds for healthcare, FY, $ million 4,511 2,940 2,016 1,534 07 08 09 10 11 12 13 14 15 16 Medicare Medicaid/Mi Salud Source: PR Planning Board, PR OMB

Financial system is diversified PR financial system assets, $ million 29 $ 214 bn 14 $ 144 bn 6 23 6 76 9 50 88 57 2007 2017 Banks IBE's Credit Unions Investment banks Other Source: PR Department of Labor

Where is Puerto Rico today? Gross Domestic Product 16 $105b TOA VEGA BAJA BAJA MANA TI VEGA SAN Gross National Product 16 ALTA $70.1b JUAN ARECIBO TOA RIO AL TA FLORIDA GRANDE MOCA Population 17 3.3m AGUADA SAN SEBASTIAN CIALES GURABO CEIBA Share of Manufacturing in GDP 47% AGUAS AÑASCO LARES UTUADO BUENAS JUNCOS NAGUABO COMERIO CAGUAS Income Per Capita 16 $17,906 OROCOVIS LAS MARIAS BARRANQUIT AS JA YUY A CIDRA MA YAGÜEZ ADJUNT AS Total Employment 2/18 1.0m MARICAO SAN LORENZO AIBONIT O VILLALBA CAYEY Inflation 2/18 1.5% COAMO SAN Y ABUCOA GERMAN Y AUCO CABO PONCE Unemployment rate 2/18 10% JUANA ROJO DIAZ SANT A SALINAS GUA Y AMA ISABEL LAJAS Participation rate 2/18 40% GUANICA Source: PR Planning Board, US Census Bureau, PR Department of Labor. 20

Economic activity after Maria HCCG quarterly indices, % change over previous year, 4Q-2017 10.8% -2.0% -2.1% -4.9% -18.5% -27.3% Coinc. Constr. Cons. Mfg Banking Leading

Destruction path of hurricanes Recent hurricanes in Puerto Rico

Ten biggest blackouts in US history Million customer hours of lost electricity service Maria ('17) 1,248 Georges ('98) 1,050 Sandy ('12) 775 Irma ('17) 753 Hugo ('89) 700 Ike ('08) 683 Katrina ('05) 681 NE Blackout ('03) 592 Wilma ('05) 515 Irene ('11) 483

����� � ���� � ��� � ����� � �� FEMA budget hurricane María, federal FY, $ billion FY 2017 FY 2018 26% 44% $15.9 bn $1.6 bn 56% 74% Assistance Operations & administrative Source: FEMA hcalero.com

Methodology of damages Elasticity between: Nordhaus: � Wind speed = Damages � Nominal GNP Model with: Strobl: � Population � Wind speed = GNP growth � Investment � Openness The study quantifies damages by specific sectors

Maria set to increase poverty by 8% to 16% % of population below poverty level �� Base scenario �� Base scenario �� �� �� ����������� �������� ���� ���� ���� ����� hcalero.com

Shock reaction model Pessimistic Optimistic scenario scenario Base scenario VAR model MCS I-R Shocks Assumptions Recovery Population Timing Distrib. funds hcalero.com Source: HCCG

Scenario definitions Assumptions Base Optimistic Pessimistic Population Moderate loss Smallest loss Significant loss (2035) (2.6 mn) (3.0 mn) (2.4 mn) Most funds in Recovery > investment > consumption govt. outlays & funds investment Funds $23.8 bn $30.2 bn $16.7 bn available Most funds < Funds FY2019, FY2019 & FY2020, > Funds FY2019 & constant funds Timeline then taper off FY2020 during FY2020 - gradually FY2023 hcalero.com Source: HCCG

Forecast scenarios The study provides: √ real GNP growth forecasts √ from 2018 thru 2023 √ Base, Optimistic, and Pessimistic scenarios

Economic recovery will be slow Real GNP, $ million (1954) 12 yrs 22 yrs 7,351 8,500 6,738 7,500 6,500 5,500 6,326 4,500 3,500 2,500 1,500 1972 1982 1992 2002 2012 2022 2032 2042 Optimistic Baseline Source: HCCG

Two sides after Maria On one hand On the other hand � Severe fiscal austerity A new socioeconomic fiber � Long debt renegotiation Private sector in new emerging activities � Outward migration Access to a high income US market Reconstruction funds to rebuild infrastructure The study identifies specific opportunities in tourism, agriculture, manufacturing, and services.

Second chance after Maria � To transform the economy � To make reforms � To rebuild infrastructure � To restructure public debt � To change the role of PROMESA Board � To halt migration

Orders for the study thru website hcalero.com