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Report warns of high debt for independent Scotland.

Byline: Annabel Walton

AN independent Scotland faces high debt and weak economic growth but fears of an exodus of banks and nationalist anti-business sentiment are unlikely, according to an investment firm.

BlackRock said independence "would bring major uncertainties, costs and risks - mostly for Scotland, but also for the remaining UK", in a report entitled Investment and Independence.

A currency union looks "unfeasible", leaving Scotland with the choice of joining the euro, which "does not appear to be a near-term option", or launching its own currency pegged to sterling or its other main trading partners and to the price of oil, it said.

The report is said to be "deliberately apolitical" but gives Black-Rock's views on some of the disputed claims about independence. It states: "Kilt-edged securities would sell at higher yields. Scotland would have to pay more to borrow than the UK and accept shorter maturities.

"The country's likely high debt, fiscal deficit, weak economic growth, lack of institutional frameworks and low foreign exchange reserves suggest a higher-than-normal debut sovereign yield spread. This would add to Scotland's fiscal stress.

"Oil and gas are critical to Scotland's finances. North Sea revenues are volatile as they depend on energy prices, production volumes, costs and tax incentives.

"Banks and insurers would face pressure to move headquarters to a stronger fiscal state with a more certain regulatory backdrop. Yet a wholesale exodus of staff and operations would be unlikely, given Scotland's cost advantage over London and other locations.

"Utilities doing business in Scotland would likely see financial returns fall as the country would be torn between ambitious targets for renewable power and popular pressure to keep electricity rates low. "Independence would raise regulatory costs and uncertainties for companies. Pension sponsors and trustees would have to change scheme designs and operations.

"Fears an independent Scotland would become a bastion of antibusiness sentiment are unfounded, in our view. The SG would likely go out of its way to accommodate the oil industry in particular."

A Scottish Government spokesman said: "The Fiscal Commission Working Group, which comprises of economic experts and two Nobel Laureates, concluded that it is in the interests of both Scotland and the UK to continue to retain sterling in a formal monetary union.

"A currency union is in the UK's economic interests given the strong trade and financial links between Scotland and the UK."

Better Together campaign director Blair McDougall said: "The report by BlackRock is a serious piece of work from experts in managing money. The SNP cannot dismiss this as they have every other warning from experts, employers and economists."
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Publication:The Journal (Newcastle, England)
Geographic Code:4EUUK
Date:Mar 24, 2014
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