The Scottish government said Thursday it will launch its first sovereign bonds in the 2026 to 2027 fiscal year, setting the stage for a £1.5 billion program aimed at funding major infrastructure projects. The plan will move forward under the next parliamentary term, though officials noted it depends on the results of national elections in May.
Scotland, a devolved nation within the U.K., has limited tax and economic powers but does not control macroeconomic policy. For decades, it has borrowed through the U.K.’s National Loans Fund despite gaining the authority to issue its own bonds nearly ten years ago.
Momentum for the program accelerated this week after Scotland received its first credit ratings from S&P Global and Moody’s. Both agencies assigned grades equal to the U.K.’s rating and higher than those of Spain, Italy and Japan.
Scotland’s First Minister John Swinney called the ratings an endorsement of the country’s “strong institutions, track record of responsible fiscal management and pro-business environment.” He said the launch of sovereign bonds, widely dubbed “kilts,” marks progress toward “a prosperous future where our country takes responsibility for its own decisions.”
Swinney added that officials will begin working with banks to serve as joint lead managers so the next government can move quickly once market conditions align.
The issuance plan follows a 2023 recommendation from the Scottish Government’s Investor Panel, which argued that sovereign bonds would help raise Scotland’s global profile and attract foreign investment. Angus Macpherson, chairman of Noble and Co and a former co-chair of the panel, said the decision “demonstrates they are serious about becoming a more investor friendly destination.”
EY is advising ministers on the bond program.
The credit ratings from S&P Global and Moody’s rest on Scotland’s current status as part of the U.K. and on the country’s reliance on sizeable annual grants from Westminster. S&P Global said it “could … lower the rating if Scotland took material steps toward independence from the U.K.” The agency also noted that Scotland’s debt burden will remain low at roughly 10 percent of operating revenue through 2027 due to limited borrowing needs.
Moody’s echoed that Scotland’s rating would likely fall if the U.K.’s own sovereign rating were downgraded or if reductions in the block grant strained Scotland’s budget. The agency added that “Scottish independence could exert downward pressure on the rating by introducing heightened uncertainty about the institutional framework.”
Independence remains a central political issue. Scotland narrowly rejected separation in a 2014 referendum, but Swinney’s government continues to argue that leaving the U.K. would offer economic benefits. In a recent paper, he said living standards “have barely improved in over 15 years due to decisions taken by Westminster,” including austerity policies and the decision to leave the European Union.
The bond announcement came as new figures showed U.K. economic growth slowing to 0.1 percent in the third quarter. Finance Minister Rachel Reeves is expected to announce tax increases later this month as the country grapples with a prolonged cost of living crisis. The U.K. also faces the highest long term borrowing costs in the G7, with its 30 year government bond yield sitting above 5 percent.
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