credit rating

Eight months before the Scottish Referendum, Standard & Poor's (the much respected international credit agency) published a report that analysed the fortunes of an Independent Scotland in terms of its credit rating.

The findings of the report didn't make good reading for the Better Together Campaign who launched a new round of scaremongering to deflect attention away from S&P's conclusion that Scotland could probably attract a very high credit rating, possibly as high as AAA.

The justification of this potential rating blew holes in most of the 'Project Fear' scare stories and exposed the lies and twisted assumptions the Unionists claimed would be a disaster for an independent Scotland's financial and economic viability.

The report states emphatically that S&P would expect Scotland to ‘benefit from all the attributes of an investment-grade sovereign credit’  due to its ‘wealthy’ economy, and that it saw ‘no fundamental reason’ in terms of Scotland’s balance sheet why Scotland could not float its own currency if it so wished. It also upheld the rating if Scotland should elect to share Sterling.

If Scotland voted for independence, this would result in a new state and as a consequence, credit rating agencies would become involved in determining the appropriate credit rating associated with any borrowing requirements for the new country. As part of their on-going process of monitoring the global financial situation, S&P felt it was appropriate to conduct an initial study on the financial and economic viability of an independent Scotland. It should be stressed that at no point does the subsequent report formally award a credit rating to an independent sovereign Scotland - mainly because such an entity does not actually exist at present and because the findings were not derived by the full use of a rating committee. The study did however produce a worthwhile guide to the financial and economic standing of the new state, based on current and past performance records.

As Standard and Poor's disclaimer states in the report:

"Standard & Poor's credit ratings are determined by rating committees. The views expressed herein have not been determined by a rating committee and do not constitute a rating or an indication of any potential Standard & Poor's rating on an independent sovereign Scotland. Standard & Poor's takes no position in the debate on the pros and cons of Scottish independence."

The overall rating was derived from 5 key considerations:

  • institutional and government effectiveness

  • economic structure and growth prospects

  • external liquidity and international investment

  • fiscal performance and flexibility

  • monetary flexibility

From the results of the analysis, the following assumptions were derived:

  • The macroeconomic profile of the wealthy and open Scottish economy conforms with the typical profile of sovereigns rated in investment-grade categories (i.e., 'BBB-' or higher).

  • Successful agreement on Scotland's membership of a monetary union negotiated with either the U.K. or the eurozone (European Economic and Monetary Union) would provide considerable support for the rating on a sovereign Scotland.

  • Alternatively, a decision by a sovereign Scotland to issue its own new and untested currency or to unilaterally adopt the currency of another sovereign - without gaining access to that currency's lender of last resort - could pose some initial risks to external financing, in our opinion. Specifically, we think Scotland would be hard-pressed, under a new currency regime, to quickly replicate the deep capital markets it enjoys today as part of the larger U.K.

  • Nevertheless, with a GDP (including North Sea oil output) only slightly below that of New Zealand, a developed economy and developed financial system, there is no fundamental reason why Scotland could not successfully float a currency.

  • The composition of Scotland's external balance sheet is as yet hypothetical, but our initial observation is that the Scottish financial sector is unusually large, with total assets estimated at 12.5x GDP. We would therefore likely view the financial sector as a significant contingent risk to the state. At the same time, a large part of this activity could be re-domiciled to the U.K.

Essentially, S&P have made favourable comparisons with a number of other economies and have categorised a sovereign Scotland as 'Investment Grade'.

In the report, a table shows the comparisons with Ireland, Germany, the UK and New Zealand among others. From these comparisons, Scotland's rating could range from BBB+ to AAA. Factors such as currency (whether in a currency union with Sterling or the Euro, or perhaps the creation of a new currency) would affect the level of the rating.

Oil, when related to a proportion of GDP is not regarded as a crucial factor in the stability of Scotlands economy. This has long been voiced by those who advocate an independent Scotland. Oil is a valuable resource, but Scotland possesses other, far more lucrative sectors to maintain her economy.

It was noted that Scotland's financial sector was rather large. If this was reduced, it would actually increase the potential of a higher credit rating. Once again, the constant fearmongering about Banks and Financial Institutions deserting Scotland was seriously exagerated by the Better Together campaign - and once again, the reality of the matter highlights their deliberate attempts to sabotage the success of an independent Scotland, knowing full-well they were misguiding the electorate to further their own agenda.

There are many, many posibilities mentioned in the report. It provides a balanced critique on Scotlands viability or 'creditworthyness'. On balance, it would appear that Scotland would indeed be perfectly capable of surviving - and prospering - as an independent sovereign state. There is no alarm about fluctuating oil prices because the sector is not central to our economy - it is a welcome financial and economic bonus, good to have when prices are high, but won't bring down the economy if prices slump. S&P state they would prefer to see a currency union (probably with Sterling) in the short term. At a future time, the possibility of floating a new currency might be a better option. The Scottish economy compares well with other major players on the world stage.

This report was published on 27 February 2014, long before the date of the referendum. From that time until the day of the vote (actually right up until today), the Unionist's have maintained a campaign of blatant lies and deception that essentially refutes every point raised in the S&P report. They have spread misinformation about the prospect of a currency union with Sterling, claiming that the Westminster government would veto any attempt to formalise such a relationship. They spread fear about the volatility of oil prices and claim the fluctuations could easily bankrupt an independent Scotland. They use the worst case scenario when assessing Scotlands wealth (mainly ignoring various hidden assets that were attributed to the English economy, but were in fact part of Scotland's) and then proclaim there would be a fiscal 'Black Hole' of £7 billion if Scotland was independent. They constantly accuse Scotland of being 'too wee, too poor and too stupid' to manage her own affairs. Their false claim that Scotland is (and always has been) financially subsidised by England is utter nonsense - Scotland has paid more to the Westminster treasury than she has received for the last 32 years in a row. Yet they still maintain Scots would be far better off if they lived within the comfort of a powerful Union, sharing resources for the benefit of all and enjoying the security of a strong economy and military force.

This short financial report confirms something completely different.

You can view the entire document with all the findings and justifications in the 'reports section' in our Knowledgebase. Here is the direct link: Standard and Poor's Ratings for Scotland 27.02.2014

An article on the Business for Scotland website (date: 28.02.2014) covers the report and offers a view from the perspective of Scottish Business. This article was created just one day after the publication of the S&P report: