(Bloomberg) -- Scotland’s government said that selling bonds can offer value for money compared to other forms of borrowing, paving the way for an inaugural issuance in the coming years.
The devolved administration found that even in a challenging market environment, a bond sale has the potential to deliver “indirect economic benefits,” according to the initial phase of a due diligence report published Wednesday.
Officials in Edinburgh will now start seeking external advice on questions such as the best time for a sale and the merits of issuing a green bond, where the proceeds are ring-fenced for environmentally-friendly projects.
While Scotland has had the ability to issue debt since 2015, it has so far refrained from doing so. Instead, it opts to effectively borrow from the UK government via the National Loans Fund. Any bond sale would require approval from the UK Treasury.
Wednesday’s report suggests the ruling pro-independence Scottish National Party views bond issuance as more than simply a way of raising money. Some of the indirect benefits identified include the opportunity to develop relationships with lenders, obtain a credit rating and promote Scotland’s broader “investment story.”
The report reaches a different conclusion from prior studies. Back in 2019, when officials in Edinburgh previously explored bond issuance, they found that a sale would offer few benefits from a “raw” financial perspective, according to internal documents obtained by Bloomberg via Freedom of Information laws.
The Scottish government also said in the report that its annual capital borrowing estimates would rise following a new agreement with Westminster. Going forward, Edinburgh’s borrowing limits increase in line with inflation, instead of being frozen.
The new agreement raises “the effective sustainable level of annual borrowing from £250 million to £300 million,” the Scottish government said. It also “provides more scope for borrowing to be stretched beyond £300 million in some years, but not every year.”
(Adds National Loan Fund policy in 4th paragraph, new borrowing target from 7th paragraph.)
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