And one way to cut their share of the UK’s national debt could be to offer England oil revenues in exchange for a smaller debt burden.
The analysts believe a newly independent country – were people in Scotland to vote for one in a referendum – would have to earn markets’ trust in their finances to attract investment and confidence.
If Scotland decided to keep the pound, the analysts estimate the country would see borrowing costs of up to 1.65 percentage points above UK 10-year interest rates.
At the same time it would have to run a primary budget surplus of 3.1 per cent excluding interest payments to get its debt down to below 60 per cent of GDP in a decade’s time.
As the country is running a deficit of 2.3 per cent, Niesr estimates it needs a 5.4 per cent tightening made up of spending cuts and tax hikes to get its debts down to 60 per cent of GDP over the following decade.
Such a policy would be particularly important if the country joined the euro, where countries are officially meant to aim to get their debts to or below that level.
However, that focus on reducing the national debt would leave the government with relatively little flexibility on other tax and spending policies.
Alternatively, more novel strategies could help, the analysts argue.
“An oil for debt swap – where the oil revenues would pass over to the UK in exchange for a large writedown of the debt that Scotland would otherwise assume – would greatly reduce the economic risks of independence, although there may be significant political limitations to this possibility,” said the report.
Another option, if the independent country does not want to reduce its share of the national debt in such a way, is that it could choose to create its own new currency.
“The greater the amount of public debt an independent Scotland assumes, the greater the importance of retaining some policy flexibility and the stronger the case for introducing a new Scottish currency,” said the report’s author Angus Armstrong.