Frameworks for Evaluating Puerto Rico's Debt Sustainability

Zihan Xiong, University of Pennsylvania

Abstract

The Commonwealth of Puerto Rico’s New Fiscal Plan’s debt sustainability analysis is evaluated in conjunction with existing metrics and frameworks for understanding debt sustainability. This includes the IMF’s Debt Sustainability Framework and the rating agencies’ methodologies in rating General Obligation bonds. Different peer comparison groups— sovereign nations, U.S. states, and municipalities— and their relevant statistics are considered and discussed. This paper proposes a peer group of municipalities, specifically of the City of Detroit, to establish a sustainable level of debt for Puerto Rico. Ratio metrics are calculated from the City of Detroit’s Comprehensive Annual Financial Reports to offer a comparative look at Puerto Rico’s debt levels. All metrics demonstrate that Puerto Rico’s current debt obligations must be greatly adjusted to result in a successful restructuring and feasible plan moving forward.