The Scottish government has previously said there could be circumstances where it’s cheaper to borrow by issuing bonds than going through the National Loan Fund. But higher costs look more likely.
So far, the Scottish government is taking advice from accountants EY and is now engaging banks to act as brokers. It will need specialist lawyers.
The costs mount up when compared with the cost of using the National Loans Fund, in which Scottish government and local authority borrowing is bundled up in the UK’s management of debt and regular bond issuance.
A further additional cost of bonds is something called the liquidity premium.
That is the increased risk to an investor of not finding a buyer if an investor wants to sell on the bonds they have bought. Bonds issued by smaller countries, in small quantities, carry more of that risk.
But the argument made by Scottish ministers is that there may be benefits that could outweigh the extra costs, and those benefits are attracting investors into Scotland and engaging with them about Scotland as a place to invest further.
The route to independence would also be smoothed by such relationships being developed and matured, rather than having to launch into issuing bonds on day one of independence when there would likely be questions about financial stability.
The Finance Secretary, Shona Robison, appeared to argue on BBC Radio Scotland that the new credit rating reflects the strength of the whole Scottish economy.
It does not. It’s all about the Scottish government. Other investments, in property, companies or windfarms, have their own risk profiles and credit ratings.