Drought may hurt Puerto Rico, Virgin Islands economy

Rafe Boulon

A developing drought in Puerto Rico and the U.S. Virgin Islands may impact their economies, with implications for bonds, analysts say.

Processing Content

“The severe drought has been persistent,” said John Mousseau, executive vice president and chief investment officer at Cumberland Advisors. “The impacts show up in increased costs for the respective water authorities and particularly if the islands must rely on hauling water in, or other technologies, like desalination.”

That shows up in higher rates, which consumers may not be able to afford, he said.

“Secondary and tertiary effects would [be a] loss of tourism and a generally lower sales tax collection,” Mousseau said.

Forecasts suggest conditions won’t improve for a while, Mousseau added. “So it is certainly a factor to consider in bond management.”

Dry conditions have prevailed in both territories since May. 

“The region is experiencing near-record warmth and dryness, which has triggered grass fires and critically low stream levels,” the National Integrated Drought Information System said in a post last week. “Depleting water supplies in major reservoirs and underground wells are causing significant economic losses across the agricultural sector.” 

“The drought, combined with faltering infrastructure, could have a lasting impact on the economy of Puerto Rico,” said Vicente Feliciano, president of Puerto Rico-based consulting firm Advantage Business Consulting. “Supply could be an issue if tourists arrive at an AirBnB only to find that there’s no water. If on top, the person posts negative reviews of the island, the present strains would have long-term consequences.”

In Puerto Rico, 82.3% of the island is abnormally dry and 24.8% is in a severe drought, according to the U.S. Drought Monitor. All the U.S. Virgin Islands’ land is in an extreme drought. July is on track to be the driest ever in Puerto Rico, according to the El Nuevo Día news site. 

Major water outages affected some areas of Puerto Rico in May and June, at least partly due to major problems with a super-aqueduct. San Juan sued the Puerto Rico Aqueducts and Sewer Authority over the problems in late May. 

PRASA didn’t immediately respond to a request for a comment. 

Water rationing is already occurring in parts of Puerto Rico and Gov. Jenniffer González Colón is reportedly considering expanding it. 

On Thursday El Nuevo Día quoted water resource engineers as saying the island’s problems stem partly from a lack of investment in water infrastructure, like dredging reservoirs, fixing aqueducts and reducing system water losses. In a separate story it reported that González Colón is planning to declare an emergency because of the drought.

“Prolonged dry conditions across the region, including in the U.S. Virgin Islands, are increasing demand on our potable water system as customers with low or depleted cisterns rely more heavily on WAPA’s supply,” the USVI Water and Power Authority said in a statement.

“Increased demand, combined with existing infrastructure challenges, can place additional strain on operations and may impact costs associated with maintaining reliability,” WAPA said. “WAPA continues to monitor conditions, adjust operations, promote conservation, and advance long-term investments to strengthen water system reliability and resilience.”