JERUSALEM - Israel is assessing the feasibility of developing a market for repurchase transactions involving the country's government bonds, the government and markets said on Thursday, as recent conflict weighs on the economy.

They said in a joint statement that after recent internal discussions and in light of the economic challenges facing the economy and the potential added value of developing a "repo" market, they would now ask the public to weigh in on the issue by March 13.

Repo transactions are agreements that involve the transfer of cash by one party to the transaction in exchange for collateral in the form of a security, typically government bonds or other low-risk assets. They are a key financing tool for financial institutions and market participants in many countries, particularly in developed markets.

"Israel currently lacks a developed and sophisticated repo market. The volume of repo transactions in the local market is relatively limited, especially when compared to its potential," the Bank of Israel, Finance Ministry, Tel Aviv Stock Exchange and Israel Securities Authority said in the statement.

"Many of these transactions rely on a small number of intermediaries, and the involvement of international financial institutions in the local repo market is also below its potential," they added.

The need to develop a repo market has been discussed before in Israel and initiatives were undertaken to establish platforms for one, but these efforts petered out due to macroeconomic conditions, legal and tax challenges, and other barriers.

"A repo market could serve as an alternative investment avenue for public assets, such as those held by institutional investors, provide a tool for liquidity management and fundraising, increase the accessibility of the local capital market to foreign investors, and enhance liquidity and marketability in the domestic market, particularly in government debt."

(Reporting by Steven Scheer; Editing by Hugh Lawson)