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9th January 2012

Scotland 'would not be triple-A'

The credit rating of an independent Scotland would unlikely be the highest possible, according to a manager at an investment company.

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Moreover, less than a triple-A rating may result in the already-struggling UK economy being downgraded too.

So says Jim Leaviss, a retail fixed-interest chief at M&G Investments.

He attributes his prediction to Scotland's level of national debt, the extent of nationalisation of its banks, its relatively larger public sector, an "unsustainable" budget deficit, a small growth rate, and "uncertainty" about what its currency would be.

However, Scotland's 8.4% share of existing UK sovereign debt would leave it with a debt-GDP rate of 56%, much lower than many leading economies, although this rate ignores the billions used for bailing out banks.

Mr Leaviss wrote on his Bond Vigilantes blog: "If you were a bad tempered English MP negotiating the break-up of the union, might you highlight that much of the banking sector interventions directly involve Scottish banks (mainly RBS, HBOS) and perhaps suggest that as well as 8.4% of the gilt-market liabilities, independent Scotland might like to take its banks back too?"

He pointed out that the assets held by the two banks alone "dwarf the size of the Scottish economy".

And even if an independent Scotland did not choose to prop up its banks, it would still operate under a budget deficit to the tune of £13.2 billion, he claimed.

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