Fitch Ratings downgrades Puerto Rico’s debt
WASHINGTON, USA — FITCH Ratings said Tuesday it was cutting Puerto Rico’s debt rating to junk status, citing financial pressures stemming from last week’s ratings downgrades on the US territory’s high debt.
Fitch lowered the rating by two notches, to BB — in the “speculative” or junk territory — from BBB-, the low-investment grade category.
“Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the Commonwealth’s debt going forward, though there have been no significant negative developments regarding the commonwealth’s finances or economy since November,” Fitch said in a statement.
Fitch said the rating outlook for the struggling Caribbean island was negative, signalling a further downgrade may be forthcoming.
The action came after two other major ratings firms downgraded Puerto Rico’s debt to junk status last week. Standard & Poor’s was the first to make the move, saying February 4 that the US territory is facing a liquidity squeeze due to high debts and a high deficit. On Friday Moody’s Investors Service followed suit.
“Fitch believes that the non-investment-grade ratings will reduce the market available for the Commonwealth’s debt going forward, thereby diminishing financial flexibility as the administration moves forward with its fiscal stabilisation efforts,” the rating firm said.
The government has been seeking US$2 billion in fresh financing in recent weeks.
The financial problems of the island, with a population of only 3.7 million, have shaken the large market for US municipal bonds, especially in the wake of the default last year by Detroit.
Enjoying broader tax breaks than most issuers in that market, Puerto Rico was able to issue huge amounts of debt over the past decade, meant to finance a build-up of infrastructure and revitalise the island’s economy.
But the economy has continued to stumble, contracting every year since 2006 even as the US economy has rebounded in the past four years.
The official unemployment rate is 14.7 per cent, more than double that of the United States, and the debt burden is equivalent to 93 per cent of the island’s gross domestic product, or economic output, more than the debt-to-GDP ratio of troubled Spain.
— AFP