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

H.Calero Consulting Group, Inc.

Assessment and Forecast

How Maria Forges PR’s Future

An economy in recession…

Real GNP growth, %

Source: PR Planning Board

8.0%

• 1.1%

0% High Moderate Negative

… with investment going down

Investment, $ billion and % of GNP

hcalero.com Source: PR Planning Board

$4.8 $12.0 $8.3 22% 30% 12% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Investment % GNP Recession

Federal funds as a driving force

$billion $0.1 $14.2 2% 13% 20% 1970 1980 1990 2000 2010 Net Transfers As % GNP ‘16

Source: PR Planning Board

Trouble with public debt

$ billion

hcalero.com Source: PR Planning Board

35% 71% 56% 99% 1970 1978 1986 1994 2002 2010 Debt Debt/GNP 2016 $

• Sec. 936

ends

The job challenge

Low participation still a major problem

Source: PR Department of Labor

46.6% 40% 10.1% 10% 2000 2003 2006 2009 2012 2015 Participation Unemployment ‘18 Feb 2018

Demographic time bomb in PR

• 6%

20% 15% 24%

PR population, million

• 2005-2016, 000s

16’

Source: US Census Bureau

2.2 3.8 3.4

Recurrent fiscal deficits

GF net revenues – GF budget, $ million (64) (3,180) (521) 348 2000 2004 2008 2012 2016 2017

Source: PR Planning Board

Vieques

Culebra

Aguadilla Aguada

R i n c ó n

Añasco Moca Isabela Quebradillas Camuy H a t i l l

• Arecibo

Florida

San Sebasti án Lares Mayagüez Las Marías Maricao

Cabo Rojo San Germán Lajas

Sabana Grande

Guánica Yauco G u a y a n i l l a P e ñ u e l a s ñ Adjuntas Utuado Ciales Jayuya Ponce Villalba Coamo Aibonito Guayama Arroyo Patillas Maunabo Humacao Naguabo Ceiba Fajardo

Luquillo

San Lorenzo Las Piedras Río Grande C a n

• v

a n a s C a r

• l

i n a

Trujillo Alto

Gurabo J u n c

• s

Cidra Aguas Buenas Comerío

Barranquitas

Orocovis San Juan G u a y n a b

• Toa

Baja B a y a m

• n

N a r a n j i t

• Vega

Baja Morovis Corozal Yabuoca

B a r c e l

• n

e t a

Manatí

Cataño

Vega Alta Toa Alta Loíza í Dorado Caguas Cayey Juana Díaz Santa Isabel Salinas

Municipalities also with deficit

Surplus Deficit

Source: OCAM

46 municipalities with deficit 60% of 78 Deficit FY 2016

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

Infrastructure

Energy Highways Ports Telecom

Tourism Key Services Manufacturing Agriculture

hcalero.com Source: HCCG

Economic growth

A dated infrastructure

45 % 34 17 4 Oil Gas Coal Renewables 20 bn kWh

Source: PREPA

Electricity generation by source, 2017, %

Untapped potential of tourism

Visitor’s expenditures, $ million

hcalero.com Source: HCCG

$234 $3,985 4% 6% 1971 1979 1987 1995 2003 2011 Visitor's expenditures % of GNP ‘16

Manufacturing dominates in GDP but not in jobs, 2016

1% 1% 47% 8% 36% 7% Agric/Min Constr. Mfg. Trade Services Gov

GDP Jobs

$105bn 2% 3% 9% 24% 43% 19% 1m

Source: PR Planning Board, PRDLHR

Agriculture is dormant

$ million

hcalero.com Source: PR Planning Board

9.7% 0.8% 1960 1968 1976 1984 1992 2000 2008 2016 Agriculture % GDP 164

Higher education in transition

Expense per university student, $ University enrollment trend by sector 73,838 67,146 116,938 160,109 '02 '04 '06 '08 '10 '12 '14 '16 Public Private $17,099 $25,130 2006 2010 2015

Source: PR Council on Higher Education

Healthcare keeps going up

Government funds for healthcare, FY, $ million 2,016 4,511 1,534 2,940 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

Source: PR Department of Labor

88 57 76 50 6 9 14 6 29 23 2007 2017 Banks IBE's Credit Unions Investment banks Other $ 144 bn $ 214 bn

ADJUNT AS AGUADA AGUAS BUENAS AIBONIT O AÑASCO ARECIBO BARRANQUIT AS CABO ROJO CAGUAS CAYEY CEIBA CIALES CIDRA COAMO COMERIO FLORIDA GUANICA GUA Y AMA GURABO JA YUY A JUANA DIAZ JUNCOS LAJAS LARES LAS MARIAS MANA TI MARICAO MA YAGÜEZ MOCA NAGUABO OROCOVIS PONCE RIO GRANDE SALINAS SAN GERMAN SAN JUAN SAN LORENZO SAN SEBASTIAN SANT A ISABEL TOA AL TA TOA BAJA UTUADO VEGA ALTA VEGA BAJA VILLALBA Y ABUCOA Y AUCO

Where is Puerto Rico today?

Gross Domestic Product 16 $105b Gross National Product 16 $70.1b Population 17 3.3m Share of Manufacturing in GDP 47% Income Per Capita 16 $17,906 Total Employment 2/18 1.0m Inflation 2/18 1.5% Unemployment rate 2/18 10% Participation rate 2/18 40% 20

Source: PR Planning Board, US Census Bureau, PR Department of Labor.

Economic activity after Maria

HCCG quarterly indices, % change over previous year, 4Q-2017

• 18.5%

10.8%

• 27.3%
• 4.9%
• 2.0%
• 2.1%

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 1,248 1,050 775 753 700 683 681 592 515 483 Maria ('17) Georges ('98) Sandy ('12) Irma ('17) Hugo ('89) Ike ('08) Katrina ('05) NE Blackout ('03) Wilma ('05) Irene ('11)

• hcalero.com

Source: FEMA

FEMA budget hurricane María, federal FY, $ billion

26%

74%

FY 2017

Assistance $1.6 bn

56%

44%

FY 2018

Operations & administrative $15.9 bn

Methodology of damages

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

Maria set to increase poverty by 8% to 16%

% of population below poverty level

hcalero.com

• Base scenario
• Base scenario

Shock reaction model

hcalero.com

Population Recovery funds Distrib. Timing Base scenario Pessimistic scenario Optimistic scenario

MCS VAR model I-R Shocks

Source: HCCG

Assumptions

hcalero.com Source: HCCG

Scenario definitions

Assumptions Base Optimistic Pessimistic

Population (2035) Moderate loss (2.6 mn) Smallest loss (3.0 mn) Significant loss (2.4 mn) Recovery funds Most funds in

• govt. outlays &

investment > investment > consumption Funds available $23.8 bn $30.2 bn $16.7 bn Timeline Most funds FY2019 & FY2020, then taper off gradually > Funds FY2019 & FY2020 < Funds FY2019, constant funds during FY2020 - FY2023

Forecast scenarios

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

6,738 6,326 7,351 1,500 2,500 3,500 4,500 5,500 6,500 7,500 8,500 1972 1982 1992 2002 2012 2022 2032 2042 Optimistic Baseline

Economic recovery will be slow

Real GNP, $ million (1954)

Source: HCCG

12 yrs 22 yrs

Two sides after Maria

Severe fiscal austerity Long debt renegotiation Outward migration A new socioeconomic fiber Private sector in new emerging activities Access to a high income US market Reconstruction funds to rebuild infrastructure On one hand On the other hand 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