"Administrative measures taken by the government in June 2007 to streamline its debt-payment mechanism significantly reduce the risk of new intermittent arrears on Grenada's domestic commercial debt," commented S&P credit analyst Olga Kalinina.

However, Kalinina added that the ratings remain constrained by the persistently difficult fiscal situation, which is being compounded by inefficiencies in tax revenue collection, the government's decision to cancel the introduction of VAT in October 2007 and slower-than-expected economic recovery following the devastating Hurricane Ivan in 2004.

Difficulty in containing capital expenditure, especially spending related to the Cricket World Cup, are also hampering efforts to rein in Grenada's debt, S&P noted. The country has fiscal debt of 118% of GDP, the third largest among speculative-grade-rated countries.

Kalinina noted that a new rescheduling of the 2025 bond remains unlikely and as such, the risk of imminent default on domestic and external debt has subsided, which is reflected in the rating upgrade.

Nonetheless, Grenada has been judged by the International Monetary Fund to have made a "remarkable recovery" after the unprecedented devastation caused by Hurricanes Ivan and Emily, led by reconstruction activity, Cricket World Cup (CWC) preparations, and the recovery of the tourism sector.

The IMF Article IV report stated that Grenada's real GDP growth averaged 7% per year during 2005-06, while inflation has fallen markedly, from a high of 5.8% (on a year-on-year basis) in late 2005 to only 2.2% by April 2007.

"This impressive rebound is a testament to the combined efforts of the Grenadian people, the government, and the creditor and donor communities," Nancy Wagner, head of an International Monetary Fund (IMF) staff mission to Grenada, said in a statement.