Above: Puerto Rico (CJ Photo)

By the Caribbean Journal staff

Standard & Poor’s ratings services has lowered its general obligation rating on the Commonwealth of Puerto Rico to “BBB-” from “BBB,” the New York-based firm announced.

Puerto Rico’s outlook is negative.

“We base the downgrade on the result of an estimated fiscal 2013 budget gap, which we view as significantly larger than originally budgeted, absent corrective action,” said Standard & Poor’s credit analyst David Hitchcock. “We believe the shortfalls against budget in fiscal 2013 will make it difficult for the commonwealth to achieve structural balance in the next two years.”

If Puerto Rico can only make limited progress on reducing its “large structural budget gaps,” S&P said it could lower the rating further.

Governor Alejandro Garcia Padilla, who took over from former Governor Luis Fortuno in January, has proposed what the firm called a “major reform of Puerto Rico’s poorly funded pension system.”

But the size of the potential fiscal gap for 2013, and potential future deficits warranted the rating action, S&P said.

The negative outlook is the result of projections of “large shortfalls against budget in fiscal 2013,” S&P said.

Absent corrective action, those shortfalls will make it “difficult for the commonwealth to achieve structural balance in the two-year outlook horizon.”

“If only limited progress is made in upcoming budget cycles in significantly reducing large structural budget gaps, we could lower the rating further,” S&P said. “The incoming administration of Governor Alejandro Garcia Padilla is considering a number of corrective budget actions, and has proposed what we view as major pension reform of the commonwealth’s poorly funded pension system. Standard & Poor’s will evaluate the fiscal effect of potential fiscal and pension reforms in determining future credit trends.”