Scottish government aiming to issue first bonds in 2026-27

The Scottish government is on track to issue its first bonds next financial year, according to the first minister.

John Swinney confirmed the bonds should be issued in 2026-27, but this depends on other factors as well as May’s Holyrood election.

The news comes as the Scottish government was given the same status as the UK by two global credit rating companies.

The government wants to publish bonds that will allow borrowing from investors who in turn receive regular interest payments to raise money for infrastructure projects.

Credit rating firm Moody’s rates the Scottish government Aa3, while rivals S&P Global rate it AA; both are identical to the UK sovereign rating.

Moody’s said its rating was based on the Scottish government’s “prudent fiscal management” and the country’s economic stability.

S&P said Scotland’s economy was “strong” and the country operated “within a stable and predictable institutional framework that provides strong oversight and well-defined regulations with the UK central government”.

Both bodies have warned that Scotland’s ratings could potentially fall if it moves towards independence.

Swinney said the Scottish government’s “high credit ratings” were a result of its “record of responsible financial management and a pro-business environment”.

He said Scotland was “now on track to launch its bond program in 2026-27, with proceeds being used to fund capital investment in essential infrastructure”.

“This is about making better use of the powers we have to borrow – not more – and reflects the maturity of Scotland’s public finances after more than 25 years of devolution,” he said.

“This is the final step in building the institutions and tools Scotland needs for a prosperous future where our country takes responsibility for its own decisions.”

Moody’s report stated that independence was a possible factor that could lead to a decrease in Scotland’s credit rating.

The following statements were made in the statement: “Although not in our base case, Scottish independence could put downward pressure on the rating by increasing uncertainty regarding the institutional framework and potentially increasing financial stability risks.”

Details of how the bonds will be issued will depend on market conditions near that time, Swinney said.

He added that the Scottish government would “shortly begin discussions with banks to act as joint lead managers to ensure the next Scottish government moves forward on the proposed plan without delay”.

When a government wants to borrow money from investors, it sells them something called bonds; This is a loan that the government promises to repay at the end of an agreed period – for example, five, ten or 30 years.

The government will also make regular payments to the investor, which may be quarterly, semi-annually or annually.

In the UK, government bonds are called gilts. As a play on this term, Scottish bonds were called “kilts”.

scottish government had the authority to issue bonds Since 2016 but had previously borrowed from the UK National Credit Fund, the main account the UK government uses to manage borrowing and lending.

Until recently there were stricter limits on how much could be raised through bonds.

Some analysis by the Scottish government suggests that bonds may offer better value for money and greater flexibility under certain circumstances.

In 2023, the then First Minister, Humza Yousaf, initiated initial efforts to issue bonds before the end of the current Scottish Parliament session.

It comes after advisers on the Scottish government’s Investor Panel recommended introducing the bonds as a way to raise Scotland’s profile and attract investment.

The credit rating assigned by organizations such as Moody’s or S&P influences investor confidence and helps determine the interest rate the government will have to pay on the money it borrows.

The Scottish government is allowed to borrow up to £472 million for capital investment next year under a deal reached with the UK government in 2023.

This will take total capital borrowing to around £2.7bn, close to the legal limit of £3.1bn.

Governments aren’t the only ones who can raise money through bonds.

Aberdeen City Council becomes first local authority In Scotland, to raise funds through capital markets after issuing £370 million worth of stock exchange bonds in 2016.