Iran will issue Islamic Treasury Bills, its version of short-term sovereign debt, for the first time on Monday in an attempt to provide a fresh fiscal stimulus for its cash-strapped economy, according to people involved in the move.
About $300 million-worth of the Treasury Bills — a sharia law-compliant way for the government to raise money — will be offered to investors at a steep discount to their face value in a sign of how nascent capital markets are developing in Iran.
The public offering will test the international community's reaction to Iran's risks following a breakthrough nuclear agreement with world powers that is expected to partially lift sanctions on the country next year.
The government issues the one-year bonds to contractors in lieu of paying them and the securities are now being offered to investors via Iran's Fara Bourse, its small over-the-counter market.
Crucially, the effective interest rate on the bills is expected to be higher than the official bank deposit rate, which is about 20 per cent. Iran's economy is heavily dependent on its banking system, which is hampered by large levels of bad debts, punitively high interest rates and double-digit rates of inflation.