An independent Scotland would not be able to count on receiving triple-A status, credit rating agencies warned today, potentially leading to higher borrowing costs if there is a break from the UK following the 2014 referendum.
The three major credit rating agencies have indicated that an independent Scotland would not automatically inherit the UK’s rating – the highest available.
The agencies – Standard & Poor, Moody’s and Fitch – do not publicly comment on unsolicited ratings and the Scottish government has not yet sought a draft opinion. However, one credit agency today told the Financial Times that Scotland could expect to receive an investment grade rating, but some notches below triple-A.
A poor credit rating indicates credit agencies are of the opinion that a government has a high risk of defaulting on a loan. Countries with such a score face higher rates of interest in order to attract investors.
This makes credit more expensive for both domestic households and business borrowers – and is likely to lead to higher bills.
Most small countries of an equivalent size to Scotland do not enjoy a triple-A rating.
The speculation on a future Scotland’s rating is expected to come as a blow to the SNP.
The Scottish Government has asserted that it was “inaccurate” to suggest an independent Scotland would not be rated triple-A and has sought to play down fears that going it alone would raise the cost of servicing Scotland’s share of UK national debt.
John Swinney, Scotland’s Finance Secretary, insisted he was confident of a top rating because was “it was difficult to deny the effectiveness and strength of the economy”.
When asked if he had sought rating guidance from the credit agencies he said the Scottish Government “have not had a draft opinion” yet.
Moody’s methodology for sovereign bond ratings states: “Immature economic and political institutions increase the risk of unpredictable behaviour in times of stress, inviting negative credit implications.”
The agency says countries more vulnerable to “sudden changes to the economy” could expect lower ratings.
This is expected to apply to Scotland because 12 per cent of the notional revenues an independent Scotland could hope to collect would come from volatile North Sea receipts.
The Scottish Government has insisted independence would strengthen the economy north of the Border. Fiscal flexibility would allow it to cut corporate tax rates to encourage companies to locate profits in Scotland.