Leader: Sovereign debt debate rates a high profile

HOW the sovereign debt of an independent Scotland would be rated will become one of the big issues in the approach to the independence referendum.

The calculations done by Jim Leaviss, a fixed-interest fund manager at investment group M&G, do not in any way claim to be definitive or rigorous. But they are of interest because they give an insight into the outlook, “gut feel” and concerns of those bond vigilantes who have a significant influence on the standing of sovereign debt. And it is to these concerns that a country aspiring to be independent need to have smart and credible answers.

Today bond markets round the world have been transfixed by the sovereign debt crisis in the eurozone and the possibility that one, and possibly more, countries could secede from the single currency union. Given the intensifying debate about the independence referendum here, it is a natural “read across” from the analysis of one currency union secession to another.

The issue for the fund manager is not just how an independent Scotland might be rated but the impact on the current rating of the UK with Scotland taken out.

On the basic comparison of debt to GDP and deficit to GDP, the analysis by Mr Leaviss could be seen as quite supportive of independence. Scotland would seem to be well positioned. But it is not the static picture with which the bond investor has to deal. It is what is likely to happen in the future. What of oil production and prices? And can Scotland achieve an economic growth rate to maintain a Triple A status?

Expect more, much more of this, as referendum day approaches.