Scottish Government bonds programme: outline business case summary

Conclusion

The Scottish Government is committed to strong and sustainable public finances. In the right market conditions, the recommendation of the Investor Panel to issue debt can represent Value for Money. It is well aligned with the Scottish Government’s economic ambitions and policies that aim to attract investment to Scotland to support sustainable economic growth as part of the just transition to a green economy.

The OBC analysis illustrates that a multi-year bond programme to best meet the strategic objectives, maximise the fiscal and economic benefits and minimise the costs of borrowing in the long term. While bond issuance under current market conditions is likely to involve additional costs in the longer term – which may reduce over time - in the short term, it could release resources to be invested in public services.

Bond issuance can deliver a range of benefits. Achieving and maintaining a strong credit rating, a track record in capital markets and increased engagement with investors will help benchmark Scotland’s economy internationally, making it easier to attract investment to Scotland, supporting jobs and driving productivity. A small permanent increase in business investment is required to match the additional cost of bonds. As such, a bond programme and credit rating could act as a signal of economic confidence and support broader investment goals in Scotland. The strong credit rating outcome confirmed by Moody’s and S&P Global marks the first step towards this.

Bonds will also allow the Scottish Government to diversify its funding by accessing different sources. Bond issuance, accompanied by a credit rating, can reinforce incentives for adopting fiscally responsible policies, thereby enhancing overall fiscal discipline and supporting the development of Scottish institutions. Bond issuance will impact differently on the Scottish Government’s stock of debt, but a programme of Bonds within the Scottish Government Borrowing Policy will remain affordable within the limits set by the Fisal Framework Agreement. From a public finance perspective, in the right market conditions these advantages alone can outweigh the additional costs of using bonds as an alternative to the National Loans Fund.