How Iran plans to cover its budget deficit

TEHRAN, Iran — Research shows that countries where businesses can easily raise funds in the bond market typically experience comparatively faster and stronger recoveries from a recession. This finding is important for a nascent market at its embryonic stage, such as Iran. Indeed, with hopes for economic growth, Iran is now developing its Islamic bond market.

Iran Fara Bourse (IFB) is an over-the-counter (OTC) market, meaning trading is done directly between two parties. It is home to a plethora of modern financial instruments, all of which are Sharia-compliant. These include instruments such as Murabaha, Musharakah, Ijarah, different types of Sukuk with various maturities and also Islamic Treasury Bills (short-term sovereign debt). The Sharia-compliant Islamic T-bills are the latest addition, having made their debut on Sept. 30.

According to Amir Hamooni, CEO of IFB, Iran ranks third among Islamic countries in the secondary market trades of Sharia-compliant securities — after Turkey and Egypt — having experienced a 30% year-on-year growth in such transactions. Hamooni also notes that 86% of debt market transactions in Iran pertain to the OTC exchange market. In this vein, he says that the current value of the Iranian credit market has reached 120 trillion rials ($4 billion).

Nonetheless, the Iranian bond market is still in its infancy. The governor of the Central Bank of Iran, Valiollah Seif, has stated that with respect to overall financing needs in the Iranian fiscal year that ended March 20, 2015, the bond market provided for less than 3.2%, while some 89.2 % was facilitated by money markets and 7.6% by the stock exchange. To provide a better picture of the situation: on average, credit markets comprise 75% of capital markets around the world. In comparison, in the past four years, the bond market accounted for merely 5% of transactions in Iranian capital markets.
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