Standard & Poor's affirmed Puerto Rico's credit rating at BBB, its second-lowest investment grade, and removed the debt from a watch list.

Puerto Rico adopted a 7 percent sales tax almost two months after a 10-day government shutdown in May closed more than 50 government agencies.

"The commonwealth's ability to implement meaningful steps to curb operating expenditures, improve managerial and budgetary controls, and eliminate the government's reliance on operating budget loans from the GDB will be key determinants of future rating stability," said S&P analyst Horacio Aldrete-Sanchez in a statement.

The GDB is the commonwealth's government development bank. Puerto Rico, which has repeatedly borrowed to plug budget gaps, will use 1 percentage point of the new sales tax as a dedicated revenue source to repay about $6.4 billion in debt. Another 4.7 percentage points will go to Puerto Rico's budget and 1.3 percentage points to local governments.

The new sales tax is expected to generate $643 million for the general fund in its first seven months and help eliminate Puerto Rico's deficit in three years.

The legislature also approved limiting general-fund spending to 98 percent of revenue by fiscal 2009. The government is currently developing a plan to restructure government agencies and freeze hiring.

Puerto Rico's current $9.5 billion budget for the fiscal year beginning July 1 reduces the U.S. commonwealth's budget gap to $325 million from $1.1 billion last year.

Standard & Poor's attributed the "chronic" deficits to ballooning payroll, operating expenditures and lax budget controls, "which have the potential to offset the revenue flexibility provided by the recently adopted sales tax," Aldrete wrote.