Puerto Rico's debt cut to junk status by Fitch

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Puerto Ricans looking at an employment boardImage source, Getty Images
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Puerto Rico's jobless rate is twice that of the US and its economy has been in recession since 2006

Fitch Ratings joined Standard and Poor's and Moody's in cutting Puerto Rico's debt to junk status, as the island's debt problems worsen.

Puerto Rico's debt is 93% of the island's gross domestic product - a ratio that is higher than that of Spain.

The island's economy has contracted every year since 2006.

Also on Tuesday, Puerto Rico said it planned to issue general obligation bonds to help with liquidity problems.

Although Puerto Rico's tax-free status has been appealing to investors, recently it has struggled with increasing pension obligations and a sluggish economy.

The current unemployment rate is 14.7% - twice that of the US.

"Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth's debt going forward," Fitch said in a statement, citing last week's downgrades by Standard and Poor's and Moody's.

Although the island is a territory of the US whose residents are granted US citizenship, it does not have the same status as other states and municipalities.

Notably, there is no provision for Puerto Rico to file for bankruptcy if it cannot raise money to repay its debts.

Puerto Rico's governor Alejandro Garcia Padilla said he had asked the island's legislature for the ability to raise up to $3.5bn in general obligation bonds to help the island pay its debts.

Although Mr Padilla has been successful in reining in costs by trimming pensions and raising taxes, that has not been enough to placate ratings agencies and investors.

An announcement of the bond sale is expected on 18 February.