Scottish Government bonds programme: outline business case summary

Introduction

Bonds are a normal form of borrowing used by businesses, and national and regional governments internationally as part of their financial management. The Scottish Government has had the power to borrow for capital investment since Scotland Act 2012, which has supported £2.2 billion in additional investment since 2015-16. To date, this has been borrowed through the National Loans Fund.

Under the 2023 Fiscal Framework Agreement, borrowing limits are now indexed to inflation, enhancing the Government’s borrowing capacity – with a 2025-26 cap of £471 million and a cumulative limit of £3.1 billion. This change created opportunities for the Scottish Government to consider diversification of borrowing sources and structure debt in a more cost-effective manner.

Separately, in 2023, the Scottish Government’s Investor Panel was formed to make recommendations as to how the Scottish Government can compete for mobile international capital investment.^[3] The Investor Panel recommended that the Scottish Government should consider issuing debt in international capital markets to raise Scotland’s profile, engaging regularly with investors and marketing Scotland’s investment story. It would also allow Scotland to develop a credit rating and a track record of delivering on its financial commitments. As set out below, this objective aligns with a number of Scottish Government strategies.

Following the Fiscal Framework Review and Investor Panel recommendations, the Scottish Government began assessing the potential benefits of new sources of capital borrowing, including by issuing bonds.