The Scottish Government said it has been confirmed as “high” investment grade, matching the UK and better than Spain, Italy and Japan, by two global credit rating agencies.
The Scottish Government’s first credit ratings have been assigned as part of its plan to sell bonds to support infrastructure investment.
Moody’s rated the Scottish Government as Aa3 and S&P Global rated it as AA, both identical to the UK’s Sovereign rating and higher than major European and global economies.
First Minister John Swinney said on Thursday the Scottish Government is on track to sell its first bonds in 2026-27.
“The bond issuance will be the first in a £1.5 billion bond programme over the life of the next parliament, subject to the outcome of the Scottish Parliament election, in-year borrowing requirements and market conditions,” said the Scottish Government.
Bonds are a standard form of borrowing for sovereign and sub-sovereign governments around the world.
The Scotland Act 2016 devolved powers to Scotland to allow the issuing of government bonds for capital investment.
The Scottish Government is being advised by EY.
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.
“We are therefore now on track to commence the bond programme from 2026/27, with the proceeds 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.
“And, it is the latest step in building the institutions and tools Scotland needs for a prosperous future where our country takes responsibility for its own decisions.
“Whilst specific issuance plans will be subject to market conditions closer to the time, we will shortly commence engagement with banks to act as joint lead managers to enable the next Scottish Government to proceed without delay.”
In 2023 the Scottish Government’s Investor Panel recommended making bonds available to market as a means of raising Scotland’s profile and attracting investment.
Angus Macpherson, Chairman of financial advisory firm Noble and Co, and former co-chair of the Investor Panel, said: “I am greatly encouraged by the progress the Scottish Government is making in achieving a credit rating to raise Scotland’s profile in the international capital markets.
“This is a positive step forward and demonstrates they are serious about becoming a more investor friendly destination.”
The Scottish Government added: “The strength and diversity of Scotland’s economy, its strong institutional framework, as well as the Scottish Government’s prudent financial management and low levels of debt are factors highlighted in the agencies’ reports.”
Finance Secretary Shona Robison said: “This is an excellent result – on a level with the UK’s sovereign rating and better than many major industrial countries – which reflects our strong track record of prudent fiscal policy and responsible debt and financial management.
“High credit ratings will support our wider efforts to boost economic growth by providing one of the clearest signals that Scotland is a place to invest in and do business.
“The credit ratings will also support plans for a future Scottish Government bond issuance. An update on progress will be set out by the First Minister …”
THE RATINGS:
Moody’s Ratings (Moody’s) has today assigned to Scotland a long-term issuer rating of Aa3 and a Baseline Credit Assessment (BCA) of a1. The outlook is stable.
The ratings are supported by the well-established devolution framework that Scotland operates under, with the requirement to maintain a balanced budget and predictable grant allocation. Furthermore, the Scottish government has demonstrated prudent fiscal management, consistently underspending its budget. Scotland’s very low debt burden, which stood at less than 15% of operating revenue in 2024/25, is a key credit strength. At the same time, the large share of revenue granted by the UK government and limited flexibility for Scotland on revenue collection constrain its rating at the level of the sovereign rating.
The stable outlook reflects Scotland’s capacity to continue delivering balanced budgets through expenditure control measures despite budgetary pressures from public sector wages and ageing. Borrowing limits will continue to support low debt and interest burdens.
RATINGS RATIONALE
INSTITUTIONAL FRAMEWORK AND STRONG BUDGET MANAGEMENT ARE SUPPORTIVE THOUGH ABILITY TO BUILD BUFFERS IS LIMITED
The Scottish government operates under a well-established devolution framework, with the requirement to maintain a balanced budget and full autonomy over spending decisions. The legal framework also enforces priority of debt service over other budgetary spending. Scotland has demonstrated prudent fiscal management, consistently underspending its budget since 1999. Furthermore, the establishment of the Scottish Fiscal Commission, an independent fiscal oversight body, has further enhanced the fiscal policy framework and helps to increase transparency around the fiscal outlook.
The devolution framework is regularly adjusted and augmented but this has always been done by consensus and in a stability-fostering manner between the two governments.
However, the requirement to set a balanced budget and the cap on the Scotland Reserve, equivalent to less than 2% of the operating budget, limit Scotland’s ability to build up fiscal and liquidity buffers and result in weak operating margins.
Limited autonomy on revenue sources and levels constrains Scotland’s rating at the level of the sovereign rating. Scotland receives 50% of its funding from the UK government. Income tax is by far the largest source of tax revenue, amounting to 80% of total. Its large and well-diversified economy supports tax-generation capacity.
The grant allocation formula exposes its budget to UK government spending decisions. The devolution of taxation powers, particularly income tax, has added complexity to the budget with limited tools to manage fluctuations. While Scotland has been able to manage funding adjustments within borrowing and reserve limits so far, the risk of larger reconciliations in excess of those limits has risen and those would have to be absorbed through spending cuts to balance the budget.
LOW DEBT AND INTEREST BURDENS WILL REMAIN LOW
The ratings are supported by Scotland’s low debt burden, which stood at less than 15% of operating revenue in 2024/25. Borrowing is only allowed for capital purposes and in very restricted cases for operating needs. Annual and cumulative borrowing caps strictly limit Scotland’s ability to take on debt. While the caps have been uprated with inflation since 2023/24, it represents a minor increase in borrowing capacity each year relative to the size of Scotland’s budget. Scotland has a long track record of meeting these fiscal rules. As a result, we expect Scotland’s leverage to remain very low.
Interest costs are also very low at 0.6% of operating revenue. Scotland borrows primarily from the National Loans Fund (NLF) and pays a very small margin of eleven basis points over UK gilts. While the cost of issuing its own bonds may be higher, the impact on its interest burden will be small given the low debt levels.
AGEING POPULATION WILL LEAD TO INCREASING FISCAL PRESSURES
Scotland faces a growing fiscal gap absent any fiscal measures, which will stand at close to 5% of operating revenue in fiscal 2030, as UK grant funding will not cover the full increase in spending, particularly on staff costs and social security spending.
Although policy implementation sometimes lags ambition as highlighted by Audit Scotland, we expect the Scottish government will address pressures through its ongoing public sector efficiency drive and workforce reduction given its requirement to set a balanced budget. As a result, operating margins will remain low but positive. Over the longer-term, Scotland also faces budgetary pressures from a population that is ageing faster than the UK’s. Healthcare and social care delivered through local government budgets account for around 40% of the Scottish budget. In addition, population ageing will weigh on economic growth. A slowing and eventually declining working-age population will add to fiscal pressures given that income tax accounts for 80% of Scotland’s tax revenue. If left unaddressed, these trends will start putting pressure on Scotland’s credit profile.
The Aa3 rating incorporates a one-notch uplift from the a1 BCA based on our assessment of a very high likelihood of extraordinary support from the UK government.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Scotland’s capacity to continue delivering balanced budget through expenditure control measures despite budgetary pressures from public sector wages and ageing. Borrowing limits will continue to be adhered to, maintaining low debt and interest burdens.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
The impact of ESG considerations on the ratings is neutral (CIS-2). It reflects a low exposure to environmental risks (E-2) although the severity and frequency of extreme climate events in Scotland, particularly storms and flooding, is rising. Demographic pressures are the main social risk for Scotland (S-3) and will lead to growing fiscal pressures through healthcare and social care spending, which together account for close to 40% of the Scottish budget, and put pressure on growth performance relative to the UK. Governance has a positive impact on the rating (G-1) stemming from good budgeting practices, a supportive institutional framework and a good fiscal track record.
The specific economic indicators, as required by EU regulation, are not available for this entity. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.
Sovereign Issuer: United Kingdom, Government of
GDP per capita (PPP basis, US$): 61,921 (2024) (also known as Per Capita Income)
Real GDP growth (% change): 1.1% (2024) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.6% (2024)
Gen. Gov. Financial Balance/GDP: -6% (2024) (also known as Fiscal Balance)
Current Account Balance/GDP: -2.2% (2024) (also known as External Balance)
External debt/GDP: 273.3% (2024)
Economic resiliency: a1
Default history: No default events (on bonds or loans) have been recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 21 October 2025, a rating committee was called to discuss the rating of Scotland. The main points raised during the discussion were: the issuer’s economic fundamentals, including its economic strength ; the issuer’s institutions and governance strength ; the issuer’s governance and/or management ; the issuer’s fiscal or financial strength, including its debt profile and the systemic risk in which the issuer operates.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
As its rating is in line with that of the UK, an upgrade of Scotland’s ratings could result from an upgrade of the UK sovereign rating provided Scotland maintains its strong credit quality.
A downgrade of the UK’s sovereign rating would likely have similar implications for Scotland given the linkages between the ratings implied by the large share of Scotland’s revenue stemming from UK government grants. Difficulties in balancing its budget either as a result of rapidly rising expenditure pressures or large reductions in the block grant would also put downward pressure on the rating. 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.
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S&P Global – The Scottish Government Assigned ‘AA’ Rating; Outlook Stable
Overview
- As a devolved nation, the Scottish Government (Scotland) operates within a stable and predictable institutional framework that provides strong oversight and well-defined arrangements with the U.K. central government.
- We think that Scotland’s economy is strong, with high GDP per capita in an international comparison.
- We project Scotland’s prudent financial planning, and the U.K. central government’s balanced budget requirement will support strong fiscal performance and help sustain very low debt levels.
- We assigned our ‘AA’ long-term issuer credit rating to Scotland, with a stable outlook.
Rating Action
On Nov. 12, 2025, S&P Global Ratings assigned its ‘AA’ long-term issuer credit rating to the Scottish Government (Scotland). The outlook is stable.
Outlook
The stable outlook reflects our view that management will remain committed to posting balanced operating budgets to sustain strong financial performance, low debt, and ample liquidity.
Downside scenario
We could lower the rating if Scotland were to relax its financial policies resulting in a substantial expansion of its debt-funded investment program, with the debt burden progressing toward 50% of operating revenue. We could also lower the rating if Scotland took material steps toward independence from the U.K.
Upside scenario
Any positive rating action would be contingent on a similar action on the U.K. We could raise the rating if the Scottish devolution framework expands further, providing material flexibility over revenue streams, expenditure responsibilities, and borrowing powers, while the economic base and financial metrics remain strong.
Rationale
Our rating on Scotland reflects our view of the U.K.’s supportive and clearly defined institutional framework for devolved regions (nations), as well as Scotland’s prudent financial policies. We expect Scotland to balance its operating budget, preserving strong financial indicators. It will continue to receive a large U.K. Block Grant covering most of its spending, including infrastructure investments. Limited borrowing requirements and gradually maturing liabilities will result in very low total debt at only 10% of operating revenue through 2027. The rating is further supported by Scotland’s exceptional intrinsic liquidity position and uninterrupted access to funding from HM Treasury.
Scotland benefits from well-defined institutional funding arrangements and prudent management policies
Scotland’s economy is strong and somewhat focused on the energy sector, while other sectors, such as financial services, education, food production, and tourism, have been growing in importance. Scotland’s GDP per capita is about 90% of the U.K. average. Over the past decade, economic growth has been a bit lower than the national, with constraints from demographic challenges, including an ageing population. Nevertheless, the unemployment rate remains lower than that of the U.K. (3.7% versus 4.3% in 2024) and we expect economic growth to broadly follow the national trajectory.
Scotland benefits from a supportive institutional framework, with predictable funding arrangements and strong oversight from U.K. authorities. These include a balanced budget requirement, annual borrowing limits, substantial transfers from the U.K. government, and uninterrupted access to HM Treasury facilities for both capital and cash flow purposes.
Under the devolved system, Scotland has extensive legislative and fiscal powers, with its own parliament and government. The Scottish budget is primarily funded through the Block Grant, supplemented by devolved tax revenue and limited borrowing. Most public funds flow through the Scottish Consolidated Fund, which prioritizes debt service–excluding private finance initiative (PFI) liabilities–over day-to-day spending by the Scottish government. In addition, the U.K. fully funds expenditure that is difficult to predict or control, such as certain public sector pensions and student loans. The U.K. sets borrowing limits and the debt ceiling for Scotland, providing predictable rules for capital and resource borrowing.
We consider the likelihood of Scottish independence to be low. Material steps toward independence could affect monetary and fiscal arrangements with the U.K. government.
We view Scotland’s management as strong, operating well within the set of rules defined within the U.K. institutional framework. Scotland’s budgetary planning is prudent, identifying the shortalls and adjusting timely. Scotland has the flexibility to use reserves from the previous year, which can be drawn down in the following year to help meet the balanced budget requirement. The Scottish parliament adopts the budget on time, despite the absence of a clear majority. We consider disclosure standards to be comprehensive and reliable, and Scotland maintains good oversight of its government-related organizations and public sector entities. It deploys funds to utility, transportation, universities, and housing organizations, ensuring that investments align with government objectives.
Modest budgetary performance, low debt, and exceptional liquidity support the rating
We expect Scotland’s operating performance will remain modest, with surpluses averaging just below 1% of operating revenue, supported by predictable Block Grant funding and controlled expenditure growth over our forecast horizon through 2027. Over the past two years, Scotland delivered a balanced budget, despite operating expenditure having been pressured by rising costs in health and social care to meet increased demand and inflationary pressures.
We project investment spending will remain moderate and be mostly funded by the capital portion of the Block Grant and additional borrowing. This will result in small deficits after capital accounts at less than 1% over the next three years. Capital expenditure will average £6.8 billion annually, equivalent to approximately 11% of total expenses, with projects focused on transport infrastructure, economic development, and social housing.
We consider Scotland’s debt burden to be very low. We expect limited borrowing needs will enable Scotland to stabilize its total debt burden at 10% of consolidated operating revenue by the end of fiscal 2028, (ending March 31). Scotland’s direct debt primarily consists of medium- and long-term loans from the National Loans Fund (NLF), in addition to PFI liabilities mainly related to National Health Service bodies and transportation. We also include in our direct debt assessment legacy NLF loans for fully owned Scottish Water, which are serviced by the utility, and a small portion of lease liabilities. In addition to direct debt, our assessment of Scotland’s total debt burden (tax-supported debt) includes a small portion of guarantees.
Scotland has a relatively large public sector, with a range of bodies receiving Scottish Government funding, such as the social housing sector, universities, local authorities, and transport companies. As per our classification, we consider these institutions’ debt as contingent liabilities, which are relatively small compared with the size of the budget and with low risk of materialization.
We assess Scotland’s overall liquidity position as exceptional, based on its very strong debt-service coverage. We expect that available cash reserves will cover 140% of its debt service over the next 12 months. This is supported by only small deficits after capital accounts, low debt service, and ample cash holdings. Scotland also benefits from uninterrupted access to HM Treasury liquidity through access to NLF loans and the U.K. Contingency Fund.