Scotland plans to issue £1.5bn of its own bonds – ‘kilts’ rather than gilts

The Scottish first minister John Swinney has said Edinburgh is on track to issue its own government bonds, nicknamed “kilts”, after the country was given the same credit rating as the UK. Two ratings agencies Moody’s and S&P Global gave Scotland a score of Aa3 and AA respectively, echoing their judgment for the UK as a whole. The jokey name for the new financial instruments is a play on gilts, as UK government bonds are known. In a statement, Moody’s said its rating was “supported by the well-established devolution framework” that Scotland operated under, “with a requirement to maintain a balanced budget and predictable grant allocation”. The ratings agency added that the Scottish National party (SNP) government had “demonstrated prudent fiscal management”. Swinney said: “The Scottish government’s high credit ratings are testament to Scotland’s strong institutions, track record of responsible fiscal management and pro-business environment.” He said the proceeds would be 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 added. If re-elected in May, the SNP government intends to issue a total of £1.5bn of debt during the next parliament. That figure pales into insignificance next to the more than £300bn the UK expects to issue this year, but is seen as establishing the principle that Scotland can raise its own funds independently. Edinburgh has had the right to issue its own debt since 2015, after Scotland was promised more powers after the 2014 independence referendum, but it operates under strict borrowing limits. The SNP argues that if it wins a fresh majority in spring’s Holyrood elections, that would represent a mandate for another independence vote. A recent Survation poll showed the party comfortably ahead on 35%, with Labour on 19%. The economic risks of independence, from questions of whether Scotland would have its own currency to fears of trade barriers at the border, featured heavily in the 2014 referendum campaign. Moody’s suggested independence might jeopardise its upbeat judgment about Scotland’s credit status. “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,” it said.