Finance system in Azerbaijan

The purpose of financial policy is to ensure the stable development of the state economy by using of financial relations and financial potential of the country. The main objectives of Financial policy in Azerbaijan are consist of:

• Financial legislation
• Organizational forms of financial relations
• Creation and use of state foundations
• Financial forecasting and planning methodology
• Financial management

Article 2.1 of the Law of the Republic of Azerbaijan on Banks (adopted amendments and additions on March 4, 2005, March 6, 2007, April 17, 2007, October 19, 2007, October 2, 2008, May 26, 2009 and June 30, 2009) states:

The banking system of Azerbaijan consists of the Central Bank of Azerbaijan and credit institutions.[3] The country has a two-stage developed banking system based on market principles (the first stage is the National Bank of the Azerbaijan, the second — commercial and other non-Bank credit institutions).

According to the 2015 report, 45 banks functioned in Azerbaijan. Some of them were closed.[4][5] At present (2018), 30 banks operate in Azerbaijan, two of which are state-owned (Azer-Turk Bank, International Bank of Azerbaijan) and 28 are private commercial banks.[6][7]

The budget touches the interests of the country's population, being an integral part of the public administration system, directly serves them.

According to the Constitution of the Republic of Azerbaijan and the Law of the Republic of Azerbaijan "On the Budget System", classification of various budgets has been provided in country, which creates the budget system.

The budget policy of Azerbaijan is defined by the Constitution of Azerbaijan, the Budget code of Azerbaijan, and a set of laws establishing the functions of individual authorities in the budget process and legislation.

The budget policy solves the following tasks:

• determination of sources of formation of the state budget revenues;
• providing conditions for the formation of the maximum possible financial resources;
• establishment of rational distribution and use of financial resources;
• determination of the structure of the expenditure part of the budget;
• determination of the amounts of expenses distributed between budgets of different levels;
• organization, regulation and stimulation of economic and social processes by financial methods;
• determination of the share of the Federal budget from the total amount of the consolidated budget;
• determination of public debt management objectives;
• determination of budget

The budget system in the Republic of Azerbaijan consists of the state budget of the Republic of Azerbaijan, the budget of the Nakhichevan Autonomous Republic and local budgets.

Monetary policy is also being implemented by Central Bank, along with the financial policy implemented by various financial authorities for ensuring financial stability. The main purpose of monetary policy of Azerbaijan is to provide financial stability, sustainable employment and economic growth without inflation.

The main directions of the monetary policy are regulated by Article 28 of the Law of the Republic of Azerbaijan "On National Bank":

The National Bank annually reports the main directions of the monetary policy of the state for the coming year to the President of Azerbaijan no later than October 1 and declares to the community through mass media until December 31.

The methods of implementing the monetary policy of Azerbaijan are consist of:

• Determination of interest rates on centralized credit operations.
• Conducting banking transactions with securities in a free market.
• Providing centralized loans to credit institutions.
• Implementation of currency intervention and exchange rate policy.
• Restriction of banking operations

Monetary policy instruments implemented by the Central Bank are also reflected in Article 29 of the Law of the Republic of Azerbaijan "On the Central Bank of the Republic of Azerbaijan". Key instruments of monetary policy are:

• open market operations
• Defining interest rates;
• The reserve requirement
• Refinancing of credit institutions;
• Deposit operations;

The main objective of the monetary policy is the elimination of the banking crisis, restoration of trust to the banking system and stimulation of the population's savings. At the same time, monetary policy has the following objectives:

• restructuring of the banking system;
• Improving control over compliance with mandatory regulations by banks;
• regulation of the national currency course;
• Filling the state's foreign exchange reserves and preventing capital flows abroad.

The development of the economy depends on the tax policy implemented in the country. Tax policy is implemented within the framework of economic policy directed to development of market economy in Azerbaijan and integration of it into the world economy.

The tax policy of the Azerbaijan is carry out based on the following principles:

• Establishment of the normative-legal basis of tax system, formation of tax culture;
• Creation of favorable conditions for taxpayers' activity and maximum protection of their rights;
• Coordinate the activities of tax administration governing bodies with other state bodies;
• Maintaining tax burden at an optimal level;
• Creating a simple tax system for taxpayers that stimulates entrepreneurship and investment activity[13]

Historically Customs policy was the primary form of state regulation of foreign trade. The essence of the customs policy is to reflect the customs tariff legislation, the establishment of relations with various international customs associations, the establishment of free customs and trade zones. As customs policy is an integral part of the economic and foreign trade policy of state, it depends on the goals and objectives of overall economic strategy of the government.

Purpose of customs policy of the Republic of Azerbaijan:

• more effective regulation of customs control and commodity circulation in the customs territory,
• protection of the internal market,
• stimulating the development of the national economy,
• Implementation of the tasks arising from the economic policy of the state,
• carrying out customs business in accordance with international standards.

Attracting investment in ensuring the sustainable and balanced development of Azerbaijan in the long-term plays a special role. Further improvement of the investment climate in the country is one of the main tasks to ensure the required volume and quality of investments.[16] The following measures are undertaken for this purpose:

• protecting personal property and improving corporate governance;
• creating a more favorable competitive environment for all investors regardless of the form of ownership;
• increasing the role of the state in order to ensure a stable normative-legal regime;
• further improvement of the regulatory and legal framework for investment activity;
• improvement of the system of informing the investors about the enterprises for the purpose of selection and analysis of investment objects;
• increasing the contribution to the development of modern institutional infrastructure that ensures the efficient transformation of deposits into investments;[17]

Investment activity in the Republic of Azerbaijan is regulated by two laws:

The decree № 952 on "The law of Azerbaijan Republic on investment activity» confirmed by the President of Azerbaijan dated January 13, 1995.[18]

The decree № 57 on "The law of the Azerbaijan Republic about protection of foreign investments" confirmed by the President of Azerbaijan, dated 15 January 1992.[19]

The main financial instruments of the accounting segment in Azerbaijan are short-term liabilities of the state, recent notes of the National Bank of Azerbaijan and their issuance and placement. The financial market of Azerbaijan provides a redistribution of short-term loans and cash flows in the form inter-bank deposit for regulating of the balance of inter-bank money market, for fulfilling the requirements of supervisory authorities, for carrying out active operations.

According to the Statute approved by the Decree of the President of the Republic, the Ministry of Finance of the Republic of Azerbaijan is a central executive body that carries out financial policy and regulates state financial management. The main duties of the Finance Ministry are:

• Preparation of proposals on financial, budget and tax policy and implementation of this policy;
• Preparation and execution of the state budget project;
• Ensuring financial stability and implementing the necessary measures for the development of the financial market;
• Improvement of the budget system, budget-tax forecasting, accounting and reporting rules of the financing mechanism;
• control over the expenditure of budget, non-budget, foreign loans.[21]

The Baku Stock Exchange is the main stock exchange of Azerbaijan.

The Baku Stock Exchange is a commercial organization created as a closed joint-stock company. The BSE was established in 2000, and its main purpose was to form an organized stock market in the country.[22]

Financial Market Supervisory Authority (FIMSA) was formed on February 3, 2016, by Decree №760 of Azerbaijani President, for the purpose of licensing, regulating and controlling of securities market, investment funds, insurance, credit organizations (bank, non-bank credit organization and postal operator) and payment systems, legalization (laundering) of monetary means or other property acquired by the person as a result of committing a crime, improvement of the control system in the field of prevention of terrorism financing.[23]