SAN JUAN, April 26 Puerto Rico would see its deficit decline substantially to $200 million under a proposed budget for the 2014 fiscal year unveiled by the territory's governor, who said he expects to close the budget gap in two to three years.
Governor Alejandro Garcia Padilla unveiled his budget plan on Thursday night.
But an official said on Friday that closing the gap would be a tough call.
"We have two years to close this deficit which is a monumental chore," Treasury Secretary Melba Acosta told reporters.
Puerto Rico has an estimated deficit of $333 million and $775 million of debt refinancing for the current fiscal year ending on June 30.
The proposed budget would also have $500 million in bond refinancing.
The new budget measures were closely watched by investors in America's $3.7 trillion municipal bond market, where Puerto Rico pays the highest yields among large issuers.
The U.S. territory's bonds have been stung in recent months by downgrades by all three leading Wall Street credit-rating agencies.
Each knocked its credit rating to near junk-bond status, pointing in part to an economy sapped by recession. Further ratings cuts are possible, and ratings agencies said they wanted Puerto Rico to make strides toward a structurally balanced budget and reform its government pension system.
Government officials say Garcia Padilla's first budget proposal since his election proposal does do that.
They said the real structural deficit of the current fiscal year budget is $2.2 billion, rather than the $1.1 billion initially acknowledged by the previous administration, and much of the increase comes from a "true accounting" of the government's obligations.
Much of the $783 million increase in the proposed 2014 budget stems from "fiscal responsibility measures," like budgeting an extra $253 million to keep the pension system afloat and working to end the practice of refinancing debt obligations to put off repayment dates.
The new budget sets aside $200 million to pay down Puerto Rico's debt and calls for refinancing $500 million of debt in 2014.
The proposed budget must be approved by the legislature, which is controlled by the governor's Popular Democratic Party. It comes as the island's Planning Board forecast that Puerto Rico's economy will shrink by 0.4 percent this calendar year and grow by 0.2 percent during the fiscal year beginning in July.
Puerto Rico will balance its budget for the current fiscal year, which ends on June 30, by issuing $333 million of new COFINA bonds and refinancing $600 million in general obligation bonds and $175 million in Public Building Authority Bonds.
The refinancing had been expected before June 30 but will not take place until after then because the government's new financial statements must be completed first, Government Development Bank spokeswoman Betsy Nazario said. The GDB has provided interim lines of credit to the government.