Currency Economics of Independence

Independent Scotland could be AAA rated – Standard & Poors

Independent Scotland AAA?

In a massive blow to the credibility of the No Campaign’s scaremongering, the credit rating agency Standard & Poor’s released a report yesterday, clearly stating that an independent Scotland would be an investment grade economy.

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 sees ‘no fundamental reason’ in terms of Scotland’s balance sheet why Scotland could not float its own currency (even though we do not intend to).

Interestingly, given that it comes on the heels of yesterday’s exaggerated media coverage of the statement by Standard Life, S&P actually reported that  ‘a shrinking of Scotland’s ‘unusually large’ financial services sector could boost the country’s sovereign credit rating by reducing the size of the economy’s external balance sheet and reducing its liabilities’.

In other words, the perception of Scotland’s credit-worthiness could be even stronger if one or two banks left. They won’t of course, which is why we only mention this for academic interest, but it reminds that we should be careful about presuming that if certain institutions did leave, it would be a disaster. RBS comes to mind in particular. Of course, RBS is deleveraging so quickly that the size of its asset base in Scotland is likely to have reduced even more significantly by independence day in March 2016. And the financial sector in Scotland contributes to a smaller share of GDP than the UK as a whole anyway.

Far from worrying about the volatility of oil prices, credit ratings agencies seem to be more concerned about the highly volatile financial sector that dominates the UK’s economy, and of course contributed to the recession and credit crisis. Business for Scotland has long argued that this is where the real threat to Scotland’s economy lies.

The report gives Scotland a positive rating even under the scenario that:

  • Scotland would not have a currency union and would have its own currency (which BFS does not believe will happen)
  • Scotland would inherit a population share of UK debt (which BFS expects to happen because Scotland will gain a fair share of assets including currency)
  • A major financial institution or two were to leave (which they won’t in our view)

There are seven major rebuttals to the No Campaign’s position in the report:

1) Oil revenues are bonus to Scotland, not something we are dependent on.

S&P state that Scotland could manage independently even without the contribution of the North Sea. Our GDP without oil is roughly similar to other credit-worthy nations.

2) Scotland is not excessively reliant on oil.
S&P says it only considers an economy to be over-reliant on a particular industry if it accounts for more than 20% of GDP. Oil in Scotland is between 12-16% of GDP.

3) The people of Scotland and the business community can be confident in the strength of an independent Scotland’s economy.

S&P cites  ‘high-quality human capital, flexible product and labour markets and transparent institutions’ as further reasons for confidence in the Scottish economy.

4) Scotland has a strong balance of payments.
The report states: ‘Overall, then, from a balance of payments perspective, there is
little evidence that Scotland depends on the rest of the world to finance a large share of its annual GDP. In other words, net external financing on an annual basis appears to be relatively low’.

5) Scotland is a wealthy nation.

The report compares the GDP (wealth in the economy) on a per head basis with other countries, stating:

  • Scotland GDP p/capita = $47,369
  • Germany GDP p/capita = $43,855
  • UK GDP p/capita = $41,066
  • New Zealand GDP p/capita =$39,840

All of those nations have an AAA credit rating from at least one of the three big credit rating agencies and Moody’s rates New Zealand higher than it does the UK.

6) Scotland has a varied tax base (and by extension a diverse economy).
S&P states ‘even excluding North Sea output and calculating per capita GDP only by looking at onshore income, Scotland would qualify for our highest economic assessment. Higher GDP per capita, in our view, gives a country a broader potential tax and funding base to draw from, which supports creditworthiness’.

7) Danny Alexander’s credibility is in tatters

Danny Alexander credibility in tatters.

Danny Alexander credibility in tatters.

Treasury Minister Danny Alexander is one of the gang of three who have schemed with Alistair Darling to convince Scots we have no rights to our own currency. In February, he gave evidence to the Scottish Parliament’s economy committee where he said interest rate rises in an independent Scotland would suffer from an “independence premium” on borrowing from the markets, leading to “an extra £1,700 a year for the average mortgage-payer”.
Now one of the credit ratings agencies has suggested Scotland would be investment grade and compared it to peers who are all AAA rated.

Was his evidence incompetent or knowingly misleading?  As another element to the self-styled Project Fear bites the dust how, can anyone believe a word that the No Campaign say?

 Is it all milk and honey then?

No, clearly not. The world is recovering after a major recession and financial crisis caused in part by the lack of regulation and foresight of previous Chancellors such as the No Campaign’s Alastair Darling or Shadow Chancellor Ed Balls. Scotland faces significant issues after a No vote, not least the generations of Westminster austerity budgets to come and the associated deep cuts in Scotland’s budget.

The S&P reports clearly states there would be a transition period and that: ‘If Scotland were not to join a monetary union then Scottish financial institutions would not have access to lending facilities from a major central bank such as the European Central Bank (ECB) or the Bank of England’.  This is true and is one of the reasons why the Scottish Government is willing to accept a fair share of the UK national debt in return for a long term agreement on continuing the currency union that will benefit both Scotland and rUK, not least by both minimising small business transaction costs on business both sides of the border and, as it happens, helping to protect the rUK’s credit rating.
The report concludes: ‘In short, the challenge for Scotland to go it alone would be significant, but not unsurpassable’.

Several of the No Campaign’s scare stories about Scotland’s financial position as an independent nation have been completely blown out of the water by this report. It states, emphatically, that an independent Scotland would be an investment worthy nation. It also highlights that Scotland’s economic peers are all AAA rated by at least one major credit agency.

We have a choice, with a NO vote we have the significant and possibly unsurpassable challenges of staying in the union or vote YES and face the challenges and opportunities of the world in control of our own destiny. We can deal with the “not unsurpassable”, challenges with the freedom to be the country we want to be and to head in the direction we choose to go.

With a YES vote we can, create a successful and sustainably growing economy whilst sharing wealth more fairly in the interests of the economy, business and Scotland people as a whole.

Join Business for Scotland – Read More

You may also like: The ACCOUNTING TRICK that Hides Scotland’s Wealth.

List of national ratings scores

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.


  • The Westminster Government, the BBC,and the media, are lying through their teeth, the fear of Scotland leaving points to the fact they would struggle without us. That is the reason for the lies told during the referendum, it’s a great thing the fear makes the weak do many strange and evil things.

  • Surely your current GDP figures are inclusive of trade with current political boundaries with the rUK and any existing agreements under EU regulations. How can you factor in these changes of circumstance of one or both?

    • The Standard and Poors report compares the GDP (wealth in the economy) on a per head basis with other countries, stating:

      Scotland GDP p/capita = $47,369
      Germany GDP p/capita = $43,855
      UK GDP p/capita = $41,066
      New Zealand GDP p/capita =$39,840

      All of those nations have an AAA credit rating from at least one of the three big credit rating agencies and Moody’s rates New Zealand higher than it does the UK. Ratings agencies use a benchmark system called internal consistency and that means that they cannot give a credit rating to one country that is markedly different to its peer group – hence why they listed a peer group.

      If I can quote from the FT article “The report also notes that while Scotland’s economic backdrop would qualify for its “highest economic assessment”. The highest economic assessment is AAA, however it is just an first look and the actual grading would be dependent on the negotiated settlement. Effectively the report guarantees a working credit rating of investment grade and hints strongly that we would compete for AAA, a rating that only one of the rings agencies gives to the UK currently.

  • Unless I’m missing something, doesn’t the fact they say “Scotland would qualify for our highest economic assessment.” suggest AAA?

    What economic assessment can be higher than their highest?

    That to me is as good an endorsement anyone in Scotland could hope for at this juncture (unless they’re hoping for bad news).

  • Does the report take into consideration how much more expensive it will be to trade with the rest of the UK as a separate country?

    Most small businesses in Scotland trade with England because we’re the same country. No red tape, no faffing about with a different law system, none of that. But as soon as we hit “independence day” it becomes instantly more complex and expensive, and possibly even prohibitively so.

    Moreoever, we might not “plan” to float our own currency, but we have no plans in case Westminster were not bluffing about leaving us out of the pound. Even if we’re allowed it, the Bank of England will have control over interest rates and won’t give a stuff about us, whereas currently we have an input on such huge economic matters.

    • Yes the report is takes into consideration that SCotland will float its own currency – it won’t but even if it did it still suggests that SCotland would have a strong and diverse economy the would be investment grade rated.

      Five thousand million pounds worth of goods and services are bought from the rest of the UK by Scotland every month, hundreds of thousands of jobs in England along would be lost if there were any trade barriers.

      If we don’t share the assets we don’t share the debt and the debt to GDP ratio increase for the rest of the UK of 20% would mean that the rUK credit rating would be damaged and rUK home owners would have to pay more for their mortgages. This plus £500m a year transaction costs for rUK businesses and the need to maintain SCotland exporting support for Sterlings balance of payments makes the idea of not sharing a currency so economically incompetent for the rUK that if you believe the unionist chancellor gang of three (Osborne Balls and Alexander) will say no following a yes vote then you must vote yes to stop people who are that incompetent running Scotland’s economy.

      We have no input now to the Bank of England MPC – the prevails Governor said unemployment in the north is a price worth paying for growth in the south. As part of the currency union the Scottish Government expects a seat on the MPC – lets wait and see how the negotiations go.

      Hopefully this article will help –

  • I’m starting to believe this report is a myth – Why – no one appears able to produce a full copy, or make it available for download?

    Will someone point me in the direction to get a copy?

    • I suppose the Herald is also writing about a mythical report as well then Gordon?

      Oh and there is a link to the actual report in the blog you are commenting on – second para the word report is blue just click on it thanks.

      Hope that helps and if you have any questions just ask.

  • Any idea what our interest rates will be?

    I am worried about my mortgage.

    Gordon you understand all this, I don’t.

    • Investment grade means BBB or better – internal consistency rules at the credit rating agencies means that all ratings are benchmarked against other similar countries – the benchmark countries all mentioned in the report are all rated AAA (the top rate) by at least one agency – so the expectation of the report is that Scotland will have a credit rating strong enough for the mortgage borrowing rate not to be effected by independence.

  • Great article.

    The GDP figures shown don’t take account of multinational profits, in particular oil and drink companies.

    That should increase GDP per capita.

  • The response of UK parliament politicians to the economy debate shows what appalling intellects they are. Rather than looking at objective evidence, such as the S&P report, they seize upon the biased opinions from the likes of Barroso as if they were established facts and then embellish these fantasies to absurdity, following the old dictum that the bigger the lie the more likely it is to be believed.

    The recent nonsense over the currency illustrates this well: from saying they will not pre-negotiate (like they never talk to terrorists) they then show their true democratic credentials by ruling out any negotiation over the pound, whereas the Scottish Government, as far as I am aware, have always said a shared pound is something they will argue for i.e. negotiate over. And then, just to avoid any doubt, if Mr Salmond hasn’t said something they say it for him and claim it to be SG policy.

    The disreputable behaviour of UK politicians makes me ever more certain that we need independence. The hypocrisy of Darling & Brown in their criticism of the SG’s fiscal policies is unbelievable when you remember that these are the men who unerringly steered the UK onto the rocks with their “light touch” regulation obeisance before the great god of financial services.

    Danny Alexander’s “evidence” at the Scottish Parliament was risible – this is the hard-faced side kick of “posh boy” Osborne (remember how he crippled North Sea exploration with a huge tax hike shortly after taking office?) whose “austerity” policy means punishing the poor with benefit cuts and rewarding the rich with tax cuts.

    A “NO” vote means more of the same, more cuts for the poor, more rewards for the rich, more inequality, more wealth transfers from Scotland (and North of England) to London and the south east.

  • I appreciate this article, but I do think the AAA rating thing is a little overstated. An “investment grade” just means anything at BBB and above. A rating of BBB is 8 rungs below AAA, so there’s a lot of variation in there – as you’d expect because you can’t really make a clear statement about what a rating would be before we even know for sure what the currency, monetary system, size of debt and various other factors will be.

    • I understand what you are saying but if you look at the rating criteria used by the different agencies they have a requirement for internal consistency, and so they must give the same rating to countries sovereign debt score that are benchmark-able. So the fact that they offer a peer group in the report that are all AAA rated by one agency or another just means that to ask the question AAA? as we have is perfectly reasonable.

      If this isn’t as good a set of news for the Yes campaign as i say t is – why have the press ignored it?

      • are you the Gordon Mcintyre Memp who denied Mark Carney said scotland would have to cede sovereignty, i take anything your organisation says with a pinch of salt along with Alex salmond your organisation is the besst asset for the better together team.

        • I have never said that Carney did not say that – I have said on several occasions that Carney did not say he did not want a currency union, and in one interview I said I didn’t pick the ceding of sovereignty as the key message from his speech – it wasn’t.

          If we vote yes Scotland gets 100% sovereignty and if we decide to share powers and regulation with the UK / EU then we do not sovereignty we share it, and as it is our choice to share and we can decide to un share ipso facto we maintain 100% sovereignty at all times. However I would be happy to recommend a statement of intent to have a long term sharing of sovereignty on the currency union as it will be 30 years at least before Scotland’s economy becomes so wealthy that it is no longer in everyones interests to share a currency.

          I wear every sneer and insult thrown at me as a badge of honour the more I receive the more I realise I am the right track.

          So thanks you for your comment.

      • Your statement ‘they offer a peer group in the report that are all AAA rated’ is innacurate. PP 2/3 of the S&P report has a Peer Comparison Table of 6 countries for a potentially indeprendent Scotland: only 2 are AAA, two are AA-and one each A- and BBB+. With Moody’s coming out today at A that’s important context for you to get right.

  • Great article and it deflates the unfair negativity front the blatant rubbish written by some of the political media

  • […] Independent Scotland AAA? In a massive blow to the credibility of the No Campaign’s scaremongering, the credit rating agency Standard & Poor's released a report yesterday, clearly stating that an independent Scotland would be an investment grade economy. The report states emphatically that  […]

    • To find out just keep reading, a great deal more will be revealed in the coming months – we don’t just debunk scare stories.

  • Excellent report. Just one small irritation:

    “accept a fair share of the UK national debt in return for a long term agreement on continuing the currency union”

    Do not agree with “long term”. Current Scottish Gov has no mandate to enter into such an agreement. So it would only be short term until new Scottish Gov elected in 2016.

    • The argument you make is the only reason the treasury official wrote the report saying no to currency union. A union that is temporary is one that will fail. If the right negotiations take place then an intention that is morally binding though not legally binding on future Scottish Governments would result in the offer of union being accepted.

      • Hi Gordon I can’t quite get my head around why the SNP are determined to share the currency. I do understand the arguments for it they have put forward but my fear is that it will mean The Bank of England has too much of ‘a hold on our finances some how, being able to hold us to ransom in a Future Independent Scotland’. Worrying also is if we have to negotiate terms for a shared currency with The UK Gov for the same reason. Could you explain for me how we could have a shared currency but have full control of all aspects of it please?

  • In fairness, does anybody really dispute that Scotland would be an investment grade economy (i.e. BBB or above)?

    I do think your title is at least more accurate than the one Newsnet Scotland went for. They claim that it “confirms Scotland will get a AAA rating” which is completely baseless given the report clearly states at the outset that it isn’t an attempt to rate Scotland or indicate what the rating would be post-independence.

    I’m not really a big supporter of either side, so I can see positive and negative sides in the report. It’s positive that they think we’d be comparable to other states like New Zealand, but there are also some issues such as the size of our financial services sector that might pose problems. Interesting contribution to the debate at any rate.

  • A very good and thorough article. It’s depressing to note how this positive news from S&P was handled by the BBC today:

    I.e. buried in a generally negative article with subheadings such as “sobering” and “significant challenges”.

    I wouldn’t mind if it wasn’t for the fact that I (and all of us) are paying for this fearmongering propaganda by a state broadcaster which is duty bound to be impartial!

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