The Scottish government has just confirmed plans to issue its first bonds in the fiscal year 2026-27. This change comes on the heels of the recently released authority for the government to issue bonds, which they received in 2016. Former Scottish First Minister John Swinney announced the initiative. He made clear that the issuance will be contingent on market conditions as the date gets closer.
Swinney noted that the Scottish government has a borrowing limit of £472 million for capital investment over the upcoming year. If the bond issue goes ahead, Scotland’s overall capital borrowing could increase to nearly £2.7 billion. This would bring it up to its legal cap of £3.1 billion. The suggested bonds, charmingly nicknamed “kilts,” would operate like UK sovereign bonds or gilts.
These bonds will issue real money onto the market. This amendment will help the Scottish government fund important infrastructure projects. Swinney emphasized the importance of this initiative, stating, “We are now on track to commence the bond programme from 2026-27, with the proceeds used to fund capital investment in key infrastructure.”
Until now, the Scottish government has borrowed from the UK National Loans Fund. This new collaborative approach is a big step toward a new financial autonomy. With a robust credit rating from two global agencies, the Scottish government enjoys a reputation built on “track record of responsible fiscal management and pro-business environment,” according to Swinney.
We focused on the bond issuance route based on the recommendation of our Investor Panel. The second plank of their infrastructure strategy centers on developing a market for bonds to improve Scotland’s investment landscape. Each year the government would pay out set amounts to investors. Investors have the option to select payment intervals of quarterly, semi-annually or annually.
In February 2023, First Minister Humza Yousaf opened the first preparatory steps for this bond program. He would like to see it completed before the current session of the Scottish Parliament runs out. Swinney expressed that this move is about “using the powers we have to borrow better – not more – and reflects the maturity of Scotland’s public finances after more than 25 years of devolution.”
Moody’s analysts warn that depending on how Scottish independence plays out, credit ratings may be impacted. This alarm is raised even while there is a great deal of optimism about these bonds. They noted, “Although not our baseline scenario, Scottish independence could exert downward pressure on the rating by introducing heightened uncertainty about the institutional framework and potentially raising financial stability risks.”
Scotland moves decisively forward with the introduction of bonds. This latest action bolsters its financial mechanisms and puts the incoming government’s commendable fiscal house in order on full display. Swinney encapsulated this sentiment, stating, “It is the latest step in building the institutions and tools Scotland needs for a prosperous future where our country takes responsibility for its own decisions.”