Scottish government aiming to issue first bonds in 2026-27

The Scottish government is "on track" to issue its first-ever bonds in the upcoming financial year, according to the First Minister.

John Swinney said the bonds should be issued in 2026-27, but added that this is subject to the results of May's Holyrood election as well as other factors. The announcement came as the Scottish government was given the same credit rating as the UK by two international agencies.

To raise funds for infrastructure projects, the government intends to issue bonds, which allows it to borrow funds from investors who, in return, receive regular interest payments.

Credit rating firm Moody's rated the Scottish government AA3, while rival S&P Global rated it AA, similar to the UK's sovereign rating. According to Moody's, its rating was based on the Scottish government's "prudent fiscal control" and the country's economic stability. S&P said Scotland's economy was "strong," operating "within a stable and predictable political framework that provides strong control and well-defined arrangements with the UK central government."

Both companies warned that their ratings could be reduced if Scotland moves towards independence.

Mr Swinney said the Scottish government's "track record of responsible fiscal control and pro-business environment" had led to the "high credit ratings."

"Scotland is now on target to begin the bond programme from 2026-27," he said, with the funds used to finance capital investment in critical infrastructure.

"This is about using the powers we have to borrow better, not more," he said, adding it "reflects the maturity of Scotland's public budget after more than 25 years of devolution."

"It is the most recent development in equipping Scotland's institutions for a prosperous future, where our country takes responsibility for its own decisions."

Swinney said the timing of the bond issues would depend on market conditions closer to the date. He added that the Scottish government will "shortly begin collaboration with banks to serve as joint lead managers" to "allow the next Scottish government to proceed without delay."

What are government bonds?

When a government needs to borrow money from investors, it offers them a bond. This is a loan that the government promises to pay back at the end of an agreed period, whether it's five, ten, or 30 years. The government will make regular interest payments to the investor, which may occur once every three, six, or 12 months.

A 'gilt' is a government bond in the United Kingdom. The Scottish bonds have been described as "kilts," a play on this term.

The Scottish government has had the authority to issue bonds since 2016 but has previously borrowed from the UK National Loan Fund (the UK government's main account for managing borrowing). Until recently, there were stricter limits on how much money could be raised. The Scottish government has suggested bonds could offer better value under certain conditions, as well as greater flexibility.

Former First Minister Humza Yousaf commissioned initial studies in 2023 with the intention of issuing bonds before the end of the current Scottish Parliament session. This came as advisers in the Scottish government's Investment Committee recommended that bonds be sold to the public as a way of raising Scotland's profile and attracting investment.

What difference would independence make to credit ratings?

If Scotland wishes to become independent, having a system for issuing bonds already in place would be helpful. The Moody's study, however, included independence as a potential factor that could lead to Scotland's credit rating being downgraded.

"Although not our baseline scenario, Scottish independence could place downward pressure on the rating by introducing more uncertainty about the institutional framework and potentially raising financial stability risks."

"Scotland's high rating is a direct result of our membership in the UK and the financial stability that comes," said Scottish Conservative finance spokesman Craig Hoy.

"Despite the SNP's desperate attempts to spin it otherwise, the ratings agencies highlight the benefits of being a member of the Union. Both S&P and Moody's warn that ratings will be downgraded if there were any attempts to break up the UK."

"We know that John Swinney will never stop preaching his independence obsession, but the ratings agencies acknowledge how damaging it will be for our economy."

Why is the credit rating important?

The credit rating assigned by companies such as Moody's or S&P boosts investor confidence and helps determine the interest rate that the government will have to pay on the loan.

Under an agreement signed with the UK government in 2023, the Scottish government is allowed to borrow up to £472 million for capital improvement over the next year. This would bring the total capital borrowing of the Scottish government to around £2.7 billion—close to its legal maximum of £3.1bn.

It is not just governments that can raise money through bonds. After issuing stock market bonds worth £370 million in 2016, Aberdeen City Council became Scotland's first local authority to raise funds via the capital markets.