Puerto Rico’s Economic Activity Index declined 0.2% during the first nine months of fiscal 2026
Puerto Rico’s economy has entered a period of stagnation while the Commonwealth faces mounting long-term fiscal risks tied to federal funding, healthcare costs and potential spending commitments that could erase projected budget surpluses within a few years, according to the latest quarterly report issued by the Financial Oversight and Management Board.
The board reported on Monday that Puerto Rico’s Economic Activity Index declined 0.2% during the first nine months of fiscal 2026 compared with the same period a year earlier, signaling an economy that is largely treading water despite billions of dollars continuing to flow into the island through federal recovery programs. Preliminary government estimates place real gross national product growth at just 0.4% in fiscal 2025, with a similar growth rate projected for fiscal 2026.
The report argues that the unprecedented level of federal recovery funding may be masking structural weaknesses in Puerto Rico’s economy. Federal disaster, COVID-19 and reconstruction programs have disbursed roughly $62.2 billion since fiscal 2018, while another $56.2 billion remains available for future deployment.
“Puerto Rico is entering a period of slower, more measured growth rather than a downturn,” the board said, citing conclusions from its annual economic forecast symposium. However, it warned that labor shortages, slow deployment of federal funds and weak labor force participation continue to constrain economic expansion.
Fiscal indicators present a mixed picture.
General Fund revenues totaled $9.3 billion through March 31, down 3.3% from the same period in fiscal 2025, although collections remained $305 million above projections in the certified fiscal plan. The decline stemmed largely from weaker corporate income tax revenues and lower motor vehicle excise tax collections, partially offset by strength in personal income taxes, sales taxes and nonresident withholding payments.
At the same time, the Commonwealth’s Treasury Single Account stood at $10.5 billion at the end of March. Yet the board noted that 77% of those funds are either restricted or committed to specific purposes, while another $1 billion is reserved as a minimum operating balance, leaving far less discretionary liquidity than the headline figure suggests.
More concerning for investors and policymakers are the long-term risks outlined in the report.
The board again highlighted the looming Medicaid funding cliff that could emerge beginning in fiscal 2028 if Congress does not act. Under current law, Puerto Rico’s federal Medicaid funding cap would fall dramatically after 2027, potentially forcing the Commonwealth to absorb billions in additional healthcare costs. The board estimates maintaining current Medicaid services could create risks of up to $3.8 billion annually from fiscal 2028 through fiscal 2030.
The fiscal plan currently projects positive funds available for potential risks of $535 million in fiscal 2026 and $991 million in fiscal 2027. However, those cushions turn negative beginning in fiscal 2029, when projected deficits exceed $1 billion annually under the board’s forecasts.
The report also identified growing exposure to rising healthcare costs, disaster recovery execution risks, tax-relief measures, PREPA-related liabilities, workforce costs, pension obligations and the possible effects of new tariffs.
For businesses, the board emphasized that Puerto Rico’s long-term growth prospects will depend on improving labor force participation, upgrading infrastructure, maintaining fiscal discipline and reducing dependence on temporary federal stimulus. It also warned that increasing expenditures or reducing revenues without recurring funding sources could accelerate the return of structural budget imbalances that contributed to the island’s debt crisis.
The report further projects Puerto Rico’s population, currently estimated at 3.1 million people, will decline by approximately 18% by 2053 absent stronger economic growth capable of slowing migration trends.
