Puerto Rico is "effectively in default" and urgently needs authority to be able to restructure its debt, US Treasury Secretary Jacob Lew said Thursday.

"Look, Puerto Rico has a terrible financial problem," Lew said in an interview on Fox Business News. "They're essentially insolvent."

"They have $70 billion in debt. The debt needs to be restructured."

The US territory has "already been taking money out of pension funds to pay current bills" and "shifting money for one creditor to pay for another creditor," Lew said.

"You don't have to wait until you miss a coupon payment to say you're in default."

Lew reiterated criticism of Congress for failing to pass legislation this month granting Puerto Rico restructuring authority.

Like US states, Puerto Rico is not allowed under current law to seek bankruptcy protection. Yet it was able for years to issue huge amounts of tax-free municipal bonds like cities, which are allowed to file for bankruptcy.

The island has sought bankruptcy protection that would force creditors to negotiate together to restructure the debt, which could eventually include a huge debt write down

Lew said he was willing to work with congressional Republican leaders at the beginning of 2016 on the issue.

"What they need is restructuring authority that covers all of their credit," he said.