Development of a sovereign bond market provides a number of important benefits — if the prerequisites to sound development are in place. On the one hand, at the macroeconomic policy level, government securities provide an avenue for domestic funding of budget deficits, other than that provided by the Central Bank, thereby avoiding a buildup of foreign currency-denominated debt.
On the other hand, government securities can also strengthen the implementation of monetary policy, including the achievement of monetary targets or inflation objectives, and can enable the use of market-based indirect monetary policy instruments. Also, a shift toward market-oriented funding of government budget deficits will reduce debt service costs over the medium to long term through development of a deep and liquid market for government securities.
Furthermore, at the microeconomic level, development of a domestic securities market can increase overall financial stability and improve financial intermediation through greater competition and development of related financial infrastructure, products and services.
As the Iranian banking sector is struggling with a great number of problems internally and externally, most significantly non-performing loans and accumulated liabilities of the government, there is thus no practical solution left to the government than to expand the debt market in the coming years — if it intends to make up for the damage to economic growth incurred by the sanctions.