Craig WilliamsBBC Scotland
Getty ImagesThe Scottish government is “on track” to issue its first ever bonds in the next financial year, according to the first minister.
John Swinney confirmed bonds should be issued in 2026-27, though this is subject to the outcome of May’s Holyrood election as well as other factors.
The news came as the Scottish government was given the same status as the UK by two global credit rating companies.
The government wants to issue bonds – which will allow it to borrow money from investors who in return receive regular interest payments – to raise money for infrastructure projects.
Credit rating company Moody’s rated the Scottish government as Aa3 while rivals S&P Global rated it as AA, both identical to the UK’s 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” with the country operating “within a stable and predictable institutional framework that provides strong oversight and well-defined arrangements with the UK central government.”
Both agencies cautioned that their ratings could potentially be cut if Scotland moves towards independence.
Swinney said the “high credit ratings” for the Scottish government came as a result of its “track record of responsible fiscal management and pro-business environment”.
He said Scotland is “now on track to commence the bond programme from 2026-27, with the proceeds used to fund capital investment in key infrastructure”.
“This 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,” he said.
“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.”
Swinney said details of how the bonds will be issued will be subject to market conditions closer to the time.
He added the Scottish government would “shortly commence engagement with banks to act as joint lead managers to enable the next Scottish government to proceed without delay” on the proposed scheme.
What are government bonds?
When a government wants to borrow money from investors, it sells them something called a bond, which is a loan the government promises to pay back at the end of an agreed time – say five, ten, or 30 years.
The government will also make regular payments – which can be once every three months, six months, or year – to the investor.
In the UK, a government bond is called a gilt. As a play on this term, the Scottish bonds have been nicknamed “kilts”.
The Scottish government has had the power to issue bonds since 2016 but has previously borrowed money from the UK National Loans Fund, which is the UK government’s main account for managing its borrowing and lending.
Until recently there were stricter limits on how much it could raise through bonds.
Some analysis by the Scottish government suggests that bonds could offer better value for money under certain circumstances as well as greater flexibility.
In 2023, then First Minister Humza Yousaf commissioned initial work with the goal of issuing bonds before the end of the current Scottish Parliament session.
That came after advisers in the Scottish government’s Investor Panel recommended making bonds available to the market as a means of raising Scotland’s profile and attracting investment.
What difference would independence make to credit ratings?
Having a system for issuing bonds already in place, rather than having to set one up from scratch, would be helpful if Scotland did choose to become independent.
However, the Moody’s report also included independence as a possible factor which could see Scotland’s credit rating downgraded.
It said: “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.”
Scottish Conservative finance spokesman Craig Hoy said: “Scotland’s good rating is a direct result of us being part of the UK, and the financial security that brings.
“Despite the desperate attempts by the SNP to spin it otherwise, the ratings agencies highlight the economic stability we enjoy from being part of the Union.
“Both S&P and Moody’s say that the ratings would be downgraded if there were any moves towards breaking up the UK.
“We know that John Swinney will never stop pushing his independence obsession, but the ratings agencies recognise how damaging that would be for our economy.”
Why is the credit rating important?
The credit rating assigned by agencies like 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 £472m for capital investment over the next year under an agreement reached with the UK government in 2023.
This would take its total capital borrowing to about £2.7bn – close to its legal limit of £3.1bn.
It is not just governments which can raise money through bonds.
Aberdeen City Council became the first local authority in Scotland to raise funds through the capital markets after issuing stock market bonds worth £370m in 2016.