Puerto Rico Economic Pulse ©

December 2014: A Mixed Bag of Gifts from Santa

How lower oil prices cushion the impact of a new tax in PR

Weaker demand for oil and large increases in US oil production have pushed oil prices to their lowest since the 2008 financial crisis. Oil price has fallen by more than 40% since June, when it was $115 a barrel. It is now below $60. As oil price continues to fall, consumers can expect more money in their pockets to pay for gasoline, electricity, and other goods. The Puerto Rican government proposed a new increase in the excise tax on crude oil and its products to provide liquidity to the Government Development Bank (GDB), which is the fiscal agent of the Commonwealth Government. These additional revenues would service $2.9 billion in bonds to be issued through the Infrastructure Finance Authority (AFI in Spanish). The tax hike is expected to increase gasoline prices but, short term, the impact will be lower due to falling gasoline prices. Energy costs, exempt from the new tax, are expected to drop to pre-2008 levels. Now PR needs to undertake significant reforms before prices begin to rise again. Find out whether cheap oil and a growing US economy will promote growth in PR.