Financial Oversight Board warns of fiscal risks, delayed federal disbursements and weak long-term growth outlook.
Puerto Rico’s economy is losing steam because federal recovery funds are slowing down and ongoing structural problems continue, according to the latest quarterly report from the Financial Oversight and Management Board. The report, which examines fiscal and economic performance through December 2025, says the economy has lost momentum even as the U.S. mainland is growing more strongly.
The Oversight Board reports that Puerto Rico’s Economic Activity Index rose by just 0.2% in the first half of FY2026 compared to the same period last year, showing that growth has nearly stopped. Early estimates from the Puerto Rico Planning Board show real GNP grew only 0.4% in FY2025, with a similar rate expected for FY2026. Inflation is low at 2.0%, but the labor force participation rate remains at 44.9%, well below the U.S. average. While there have been some job gains, participation gaps remain wide, especially among younger and older workers.
As of December 31, 2025, government revenues reached $6 billion. This is 1.7% higher than the Fiscal Plan forecast but 5% lower than the same period in FY2025. The report says this small increase over projections is due to stronger personal income tax, non-resident withholding, and sales and use tax collections, which were helped by a steady labor market. However, these gains were balanced out by weaker corporate income tax receipts and lower motor vehicle excise taxes.
General Fund spending totaled $4.83 billion, which is 9% below the forecast. Almost half of this difference is from expenses that have happened but have not yet been recorded, which the Board says is due to fragmented accounting systems and weak financial controls. The rest is because of delayed capital projects and other spending expected later in the year.
The report raises concerns about the slow pace of federal funding. Since 2017, Puerto Rico has been given over $120 billion in federal recovery and stimulus funds, but much of it has not been spent. Of the $72 billion in Disaster Relief Funds, 58% is still undistributed. In FY2025, only $4.3 billion was disbursed, well below the $5.5 billion expected in the Fiscal Plan. The Board warns that failing to use these funds could hurt long-term economic growth, especially since federal support is expected to end by FY2035.
The Board cautions that Puerto Rico’s fiscal stability depends on strict adherence to the Fiscal Plan. New spending commitments or revenue reductions without permanent funding sources could trigger a budget imbalance before FY2029. The report identifies several risks, including uncertain long‑term Medicaid funding, potential cuts to federally supported programs, new recurring expenses currently covered by temporary federal funds, additional Commonwealth contributions to disaster recovery, and limited access to capital markets for major infrastructure investments.
