Puerto Rico’s economy is constantly ravaged by natural disasters, debt, and heightened poverty.

Puerto Rico continues to be ravaged by a sustained recession.

Annual economic growth fell by roughly 12.5 percent overall between 2004 and 2020, while Puerto Rico’s population shrunk by more than 16 percent. It has also struggled under a large public debt in recent years, totaling about $70 billion—or 68 percent of gross domestic product (GDP)—in 2020. Puerto Rico’s downward spiral has been compounded by natural disasters, government mismanagement and corruption, and the COVID-19 pandemic.

Unable to borrow on global markets, Puerto Rico was in economic limbo for years after turning over its budget to an independent control board appointed by Washington as part of a plan to restructure its debts. Making matters worse, in 2019, U.S. authorities arrested former high-level officials in a corruption scandal, leading to the resignation of Governor Ricardo Rosselló.

The island’s average household income is about one-third of the U.S. average, and its poverty rate is more than twice that of the poorest state, Mississippi. Meanwhile, the territory’s unemployment rate has stayed at almost twice the national average for the past decade, at times reaching double digits. However, it fell to about 8 percent in 2021 and has continued to drop.

What has driven the crisis?

Experts say the island’s economic crisis is rooted in [PDF] twentieth-century legislation that encouraged Puerto Rico’s reliance on debt to fill federal funding gaps. It did this by giving bond investors higher returns and loosening borrowing limits. Since 1917, lenders to Puerto Rico have been exempt from local, state, and federal taxes—the so-called triple tax exemption—effectively boosting their profits and making the island a more attractive investment. The territory’s constitution also allows Puerto Rico to balance its budget with its debt, among other provisions that facilitate borrowing.

The debt problem accelerated after 1996, when the U.S. government began phasing out Internal Revenue Code Section 936. This provision had allowed American businesses to operate tax-free in Puerto Rico, which critics viewed as a windfall for wealthy corporations. Section 936’s repeal triggered a deterioration of Puerto Rico’s manufacturing sector, and the territorial government increasingly turned to debt to cover its spending.

The 2008 global financial crisis hit Puerto Rico especially hard, with the recession further lowering tax revenues, souring an early-2000s construction boom, and giving investors pause. The territorial government implemented austerity measures, including layoffs of public workers, that sent unemployment soaring. It also crafted dubious deals to balance its budget, including letting government agencies borrow from one another to pay back bonds.

On top of that, experts say, much of this money was poorly spent. Leaders failed to parlay the billions of dollars they borrowed into strong institutions, a deficit laid bare by the natural disasters that have devastated Puerto Rico’s underfunded and poorly maintained infrastructure. Hurricane Maria brought ruin to the island in 2017, causing about three thousand deaths [PDF], knocking out the electrical power grid, and costing tens of billions of dollars. An earthquake at the start of 2020, the island’s strongest in a century, also created a power blackout. Months later, the pandemic exposed the territory’s disjointed and inefficient health system, which critics say has impeded care for COVID-19 patients. In September 2022, Hurricane Fiona triggered severe flooding and mudslides and knocked out power to more than one million homes and businesses.

The combination of government mismanagement and unrelenting natural disasters has driven an exodus from the territory, further depressing economic activity, crippling [damaging] schools and other institutions, and leaving fewer taxpayers to shoulder the debt. More than 130,000 residents fled to the mainland after Hurricane Maria alone. Today, more people of Puerto Rican descent live on the mainland than on the island, and a 2019 study projected that the territory’s population would fall by another 8 percent [PDF] by 2024.