May 1 (Bloomberg) -- Puerto Rico Governor Alejandro Garcia Padilla’s budget plan is “very positive” for the commonwealth, a Moody’s Investors Service analyst said today.
The governor released a $9.64 billion budget proposal April 29 for the fiscal year beginning July 1 that doesn’t use future debt sales to fill deficits. Garcia Padilla wants to reduce expenses by merging agencies, freezing public workers’ salaries and benefit increases and closing about 100 schools.
“There is a lot of cost cutting,” Emily Raimes, a Moody’s analyst, said on a panel at a Bond Buyer conference in Baltimore. “This is the sort of step they need to be taking.”
The island of 3.6 million is struggling with a mounting debt load and a shrinking economy. While the governor’s proposal won’t include debt sales to support operating expenses, it uses proceeds from a $3.5 billion March 11 bond sale to pay some of the interest on the deal over the next two years, according to bond documents.
Garcia Padilla’s spending plan is “essentially a balanced budget,” Raimes said.
The bonds issued in March, which mature in July 2035, first sold at 93 cents on the dollar. The speculative-grade securities traded today at an average price of 93.13 cents, eclipsing the original price for the first time since April 7, data compiled by Bloomberg show.
Puerto Rico securities have earned 6.5 percent this year, beating the 4.8 percent gain for the broader municipal market, according to S&P Dow Jones Indices.
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