The initial phase of due diligence concerning a potential inaugural Scottish bond issuance has now concluded, with findings published by the Scottish government in their 2025-2026 budget indicating that, “under favourable market conditions, issuing a bond could offer better value in net-present-value terms compared to borrowing through the UK National Loans Fund”.
The bond issuance could “enhance investor engagement, potentially leading to indirect economic benefits even in more delicate market conditions.”
The Investor Panel advising the government has noted that, despite additional costs, issuing bonds could “significantly elevate Scotland’s profile in international capital markets, fostering stronger relationships with debt providers, building a track record, and potentially securing a credit rating”.
The prospect of Scotland issuing its own bonds has elicited mixed reactions from investors and analysts. While the government views this move as an opportunity to diversify its borrowing and engage with international investors, some market participants remain sceptical. Critics have raised concerns about the success of any bond issuance, emphasising the importance of pricing and demand. Ben Ashby, chief investment officer at Henderson Rowe in his recent analysis on Linkedin, cautioned: “The Scottish Government’s debut bond deal presents significant risks, and investors should carefully consider the fiscal challenges and potential costs associated with this issuance.”
With the initial analysis now completed, the Scottish Government is starting a more detailed due diligence process to assess the specific conditions required for a successful bond issuance. This phase will evaluate the optimal timing for issuance, the potential frequency of bond offerings to meet fiscal and economic objectives and the consideration of formal designations such as “Green Bonds”. Legal, operational, and transaction structure considerations will also be examined. The Scottish government said it would seek external expertise to assist in this next phase, with further details expected to be provided in the 2025-26 financial year, going from 1 April 2025 to 31 March 2026
A Scottish Government bond issuance remains subject to HM Treasury approval. The Scottish government plans to work closely with HM Treasury throughout this process to ensure compliance with broader UK fiscal rules. Additionally, the Scottish Fiscal Commission, Scotland’s independent fiscal oversight body, will assess the reasonableness of the government’s borrowing plans as the due diligence process advances.
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