THE CENTRAL BANK OF THE REPUBLIC OF AZERBAIJAN

2011-2014

STRATEGIC PLAN “In our thoughts the ideal image of a Central Bank of XXI century is - a reliable, transparent and modern public institution, owning contemporary management practices, developed human capital, high corporate values that effectively contribute to the achievement of its mission thus serving the well-being of a society ”. E. Rustamov

TABLE OF CONTENTS FOREWORD ..........................................................................................................................3 OUR MISSION ....................................................................................................................... 5 OUR VISION ..........................................................................................................................5 OUR VALUES ........................................................................................................................ 6 INSTITUTIONAL ADVANTAGES ................................................................................... 7 OPPORTUNITIES, TRENDS AND RECENT DEVELOPMENTS .............................8 NEW PRIORITIES................................................................................................................ 9 STRATEGIC OBJECTIVES .............................................................................................11

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FOREWORD Recent economic development and modernisation strategy pursued under the leadership of the President of the Republic of Azerbaijan Mr. Ilham Aliyev considerably increased the living standards and social welfare of the population as a result of which Azerbaijan has stepped up to the medium-income country group. Currently the national economy has a modern socio-economical and physical infrastructure, a high level of employment and capacity for international competitiveness. The Central Bank of Azerbaijan has successfully fulfilled its mandate for the last 15 years and contributed to the economic growth strategy of the government. The Bank reliably maintains macroeconomic and financial stability, ensures the development of the banking and payment systems and effectively undertakes other core functions creating public value. Over the years the Bank has formed its own corporate governance traditions and value system. The Bank has developed its human capital, applied the latest technological innovations to its business processes and established strong international cooperation. These activities enabled the Bank to manage its functions efficiently which eventually led to high credibility. The achievements obtained are the valuable assets that underpin further successful implementation of the Bank’s mission. Nevertheless, the Bank encounters new strategic challenges in the medium and long-run. Amid complicated global economic environment, sustaining the macroeconomic stability by national economies is becoming a matter of high priority. At the same time, the recent financial crisis triggered the formulation of new regulatory mechanisms to preserve financial stability on a global basis. Such developments necessitate further improvement and modernization of a number of functions of the Bank. In the new global conditions the Bank is expected to provide enhanced support to the sustainable development of the national economy. Therefore, it is important for the Bank to continue modernization of the institutional management and development of its human capital. Addressing these challenges has become institutional priority of the Bank for the next strategic period. As dictated by the new priorities for the next strategic period the Bank will organize its activities in the following directions: 

substantially modernise and improve the primary functions in accordance with the international standards;



establish a corporate governance system in line with the best practices;



build a modern and competent human capital; 3



provide active support to the economic development strategy of the government.

Existing sustainable political and socio-economic stability, realization of economic diversification and reforms strategy, active integration of our country to the global processes, and its amplifying international reputation, as well as broad application of the state-of-art technologies in all sectors of the economy, create favourable conditions for successful implementation of these priorities. I believe that strategic programs and projects to be implemented in specified directions will transform the Bank to a leading public institution – a XXI century Central Bank that will maintain economic stability and support sustainable economic growth. I wish the staff of the Central Bank a high decisiveness and success in this honourable journey. I believe that our corporate values formulated for years will stimulate a successful implementation of the new Strategic Plan.

Governor of the Central Bank

E.Rustamov

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OUR MISSION The mission of the Central Bank of Azerbaijan is to:  maintain price stability;  preserve financial stability;  support economic growth of the country.

OUR VISION The Central Bank is striving to become a leading public institution which maintains macroeconomic stability and supports the sustainable economic growth.

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OUR VALUES

Quality

Leadership

Integrity

Corporate Values Loyalty

Inclusiveness

Intellect

Innovativeness

Leadership – relying on healthy ambitions, intellect and self-discipline built upon employee trust and confidence; Quality – meeting stakeholder expectations through high level of performance and services; Integrity – ensuring consistency, accuracy, honesty and trustfulness of actions; Innovativeness – stimulating innovations, sustainable improvement and critical thinking; Intellect – displaying professionalism, healthy judgement and mature intellectual capacity; Inclusiveness – ensuring synergy and culture of knowledge sharing, and team-work; Loyalty – increasing loyalty to the bank through mutual trust, successful talent management and strong organisational reputation. 6

INSTITUTIONAL ADVANTAGES The institutional advantages of the Bank create confidence in it for higher achievements in the next strategic period. The Bank relies on following advantages in successfully achieving its objectives:  Perennial performance. The Bank has accumulated a rich expertise in managing challenging tasks on macroeconomic and financial stability, and developing the banking sector and financial infrastructure. At the onset of the transition period, during the South-East Asian crisis, as well as in-the-latest-crisis the Bank’s successful policy was key in maintaining the economic stability and fostering the development of the national economy.  Corporate governance tradition. The Bank operates in the favourable environment of ongoing institutional changes and modernization which will eventually lead to its transformation to one of the top modern central banks. For effective realization of mandate driven mission, the Bank owns a modern organisational structure, decision-making procedures and crucial business processes designed in all activity directions.  Human capital. The Bank has young, dynamic, highly competent staff. The available staff is capable to flexibly adapt to institutional changes leading to the Bank’s modernization and become involved in strategic innovations. The level of education, its culture and outlook allows the Bank’s staff to actively master experience of leading central banks and ensure effective exchange of knowledge with them.  Corporate culture and values. The Bank established a highly modern governance culture and management style. The new management style of the Bank emphasizes such practices as leading by example and management by objectives.  Technological development. The Bank has made a huge progress in technological modernization. The automation of the major portion of the business processes increased efficiency and effectiveness of the Bank’s operations. The Bank employs the state-of-art equipments and software thus ensuring its technological development.  International cooperation. International credibility of the Bank enabled it to establish strong relations with global economic institutions, foreign financial donors and leading foreign central banks. Existing ties allowed the Bank to effectively attract the technical assistance for the purposes of institutional development and adopting foreign innovations.

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 Public credibility. The Central Bank has earned high public confidence through maintaining macroeconomic stability in recent years, boosting trust in the banking sector and actively supporting the economic growth. The effective anti-crisis measures implemented by the Bank’s leadership during the global economic crisis managed to preserve financial stability and economic growth in the country, which in turn enhanced the public confidence in the Bank. The high public confidence is an acknowledgment of the Bank as a reliable partner with real-time goals and strategies for their achievement.

OPPORTUNITIES, TRENDS AND RECENT DEVELOPMENTS Opportunities Positive trends in the external environment lead to favourable opportunities for the Bank in realizing its strategic objectives successfully:  Sustainable political and socio-economic stability. The political and socioeconomic stability in the country guarantees the Bank’s successful implementation of its mission. The political and socio-economic stability also contributes to sustainable economic development, as well as the development of the banking system and realization of the new modernization strategy of the Bank.  Strategy on economic diversification and reforms. A new economic growth model that is developed within the economic diversification and reforms strategy is aimed at accelerating the institutional development, effective and robust management of financial capacity, and human capital. This strategy will enable the Bank to implement its mandate driven functions more effectively.  Global cooperation and international collaboration. International efforts are put together to prevent global financial crises after the most recent one. These efforts yield crucial innovations in the economic policy design creating favourable conditions for the Bank to substantially develop the policy framework. The same time, economic liberalization and increasing international acknowledgement of the country enables the Bank to deepen its international relations and engage in intellectual exchange.  Technological development. Technological innovations are being more and more widely employed in recent years. This enables modernization and automation of the Bank’s operations, accelerated development of the financial system infrastructure and greater access to the financial services in the country. 8

Trends and recent developments The new trends in the global economy along with the new challenges in regard to the perspective development of the national economy established a number of core factors that guide future performance of the Bank:  Global economic disbalances. Huge disbalances still lingering in the global economy embrace significant risks. The economic power centres are going through crucial re-balancing. For the time being, the global macroeconomic coordination mechanisms are at their early stage of formation. Such a condition makes the economies of developing countries more fragile. These are external factors that are potentially capable of affecting the macroeconomic and financial stability in the Azerbaijani economy.  Volatility in the world markets. Price volatility in the world commodity markets triggers global food inflation and its volatility. High oil prices and their uncertainty also affect the global inflation. All these realities should be considered in the process of macroeconomic policy formulation and implementation.  Decrease of dependency on natural resources. We are vis-a-vis with the strategic challenges that encompass diversification of the national economy and increasing its sustainability that should eventually lead to the entry of the country to the group of high-income economies. This is the most crucial factor affecting the performance and strategy of the Bank in the upcoming strategic period.

NEW PRIORITIES Recent economic growth dynamics in the country, rapid development of the financial system, increasing complexity of the global economic environment are the challenges that catalyze institutional development of the Bank. To effectively respond to these challenges the Bank has set strategic priorities in a number of directions:  Maintenance of macroeconomic stability. Uncertainties in the global economic environment, as well as in the international commodity and financial markets are fuelled by a number of global risks. The growth dynamics of the world economy is fragile, global inflationary factors have accumulated, exchange rate of the leading currencies is highly volatile. In the conditions of changing global economic environment and openness of the country’s economy to the world the maintenance of macroeconomic stability is a permanent task for the Bank. To that effect, the Bank shall focus on enhancement of its institutional basis to sustain 9

macroeconomic stability through empiric research, considerable development of the monetary management design and intellectual resources in the new strategic period.  Financial stability in the banking system. The lessons of the global crisis and new post-crisis challenges have intensified international efforts and new initiatives on financial stability management. These processes are aided by formation of the new architecture of financial system regulation in harmony with the up-to-date challenges. The Bank shall substantiate new standards that are being shaped in the global scale to develop new financial stability ensuring mechanisms. However, the new specifics shall be considered as well while applying these standards. To that end, regulation of the banking system and solid modernization of the supervisory framework under the latest international best practices and standards is a priority issue for the next strategic period.  Substantial modernization of supporting functions servicing the core mission of the Bank. The supporting functions of the Bank servicing mission driven core functions as established by law should be fully adjusted to the modern standards. The upgrading of the organisation of cash circulation, statistics and external communication management is a top priority.  Adjust institutional governance to the best practices. To achieve organizational maturity, the Bank needs to upscale a number of its institutional governance systems to the level of governance systems owned by advanced central banks. This primarily includes development of internal corporate environment, performance management, as well as management of human resources, internal support services and risks.  Development of human capital. Human capital is the key in successful implementation of the Bank mission, upon which the institutional maturity is based. Central banking competencies need to be permanently changed and updated. To this effect, fundamental knowledge and skills of the Bank staff and professional experiences need to keep pace with changing environment. One of the top priorities of the Bank in the new strategic period is to adjust the human capital to the central banking standards. Within this period the Bank should re-create education, reward, career-building and other systems that motivate personnel development.  Further support for economic growth. The macroeconomic stability, soundness of the banking sector and its deepening role in financial intermediation positively contribute to the economic growth and sustainable development. The Bank’s more viable support to the formulation of economic growth and development policies and increased intellectual contribution to this process as a leading mega regulator is also a strategic priority. Sustainable economic growth may be fuelled by 10

increased role of the Bank in development of human capital in the country, especially formulation of the public educational strategy. All this eventually leads to enhanced public confidence in the Bank’s performance.

STRATEGIC OBJECTIVES Strategic objective 1. To strengthen institutional capacity of the macroeconomic stability management 1.1. 1.2.

Enhance empirical research capacity of the bank aligned with the modern central banking practices Develop intellectual resources on monetary policy management

In order to enhance empirical research capacity it is planned to strengthen dynamic macroeconomic modelling and forecasting framework, deepen empirical research of micro- and macroeconomic environment of the monetary and exchange rate policies, establish empirical research capacity on development economy and finance as well as the world economy. In order to develop intellectual resources on monetary policy management it is intended to implement a number of projects, such as graduate program on economics and banking, virtual central bank lab, museum, e-library, and distant education.

Strategic objective 2. To develop risk-based supervisory framework 2.1.

Formulate the new architecture of the risk-based supervisory system

2.2.

Formulate implementation procedures for the risk-based supervisory system

In order to formulate the new architecture of the risk-based supervisory system, it is intended to design a conceptual framework, create legislative foundation for risk management in commercial banks, develop methodology to evaluate key risk categories as well as to manage risks and assess internal control systems. To design implementation procedures for the risk-based supervisory system, it is planned to create and systematize a relevant supervisory regime and design new procedures for the banking supervision.

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Strategic objective 3. To design modern cash management system 3.1.

Design a new cash management system in line with the best standards

3.2.

Launch a fully automated modern Cash Centre

In order to design a new cash management system it is planned to undertake several activities such as launching modern practices for currency design and expertise, as well as creating a new reporting system and economic analysis capacity, and working out a development model for cash management. The establishment of the automated Cash Center includes creation of the physichal infrastructure for storage, transportation and processing of cash and automation of all of the business processes.

Strategic objective 4. To establish modern and standardized statistical system 4.1.

Launch a unified electronic statistical database and analytical reporting system

4.2.

Develop and disseminate gross external debt and international investment position statistics

4.3.

Launch a wide-scale monitoring system of the real sector

In order to establish a unified electronic statistical database and analytical reporting system, a project will be implemented to provide a full automation of data collection, processing and distribution in a single source. It is planned to design relevant business processes which enable to develop and disseminate gross external debt and international investment position statistics. It is planned to launch a comprehensive real sector monitoring systemintended toenhance the capacity of statistics function of the Bank in measuring economic conjencture and evaluating financial situation in the corporate sector.

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Strategic objective 5. To form corporate governance system ensuring high performance effectiveness 5.1.

Modernize the corporate governance structure

5.2.

Improve internal control and risk management system in line with the best practices

5.3.

Form a new operational management system

Within the scope of modernizing corporate governance structure it is intended to form a new governance architecture, a state-of-art management information and reporting system, upgrade the functions of the structural units supporting the Board’s activities of the Bank. In order to improve internal control and risk management systems in line with the best practices, it is planned to establish appropriate institutional management framework, methodological basis and normative procedures, create business processes and improve the staff capacity. In order to form a new operational management system, it is intended to launch a new system capable to plan, measure, organise and evaluate all functions and their business processes.

Strategic objective 6. To build a human resources management system facilitating high individual performance and development 6.1.

Design a new education model targeted at development of individual competencies

6.2.

Launch an individual performance and development planning and evaluation system

6.3.

Design a new motivation (including career path) system

In order to design a new education model targeted at development of individual competencies, it is planned to implement long- and short-term foreign education programs, effective internal education and a knowledge institute project. In order to launch an individual performance and development planning and evaluation system, it is intended to design a new system of competency-based individual performance and development plans, measurement, evaluation and rewarding of individual performance. In order to ensure a high employee motivation (including career path) it is intended to design an effective remuneration system through job evaluation process that is in line with modern 13 international best practices and considers local specifics, along with designing an effective dual career path model.

Strategic objective 7. To build a modern communication strategy of the Bank 7.1.

Establish an external communication strategy focused at target groups

7.2.

Create an internal communication strategy fostering development of corporate culture

7.3.

Design Corporate Social Responsibility Policy

In order to formulate an effective external communication strategy focused at target groups, systems will be developed to study target groups, monitor and evaluate multilayered communication channels and provide mechanisms for information standards and data transfer. In order to build internal communication strategy, new means of internal communication (internal networking, internal portal on intercourse and exchange of knowledge) will be promoted along with the development of new communication technologies. Within the scope of the Corporate Social Responsibility policy of the Bank, social policy projects of the government in diverse directions will be supported.

Strategic objective 8. To improve the financial analysis and reporting system in line with international standards 8.1.

Establish an activity-based management system

8.2.

Improve financial accounting and reporting to the latest standards

In order to establish an activity-based management system, an appropriate project shall be implemented to measure costs per activity within business processes in the Bank. The project, at the same time, will enable to track financial costs to business processes and functional directions of the Bank. In order to improve financial accounting and reporting to the lates standards, a new Charter of Accounts will be developed. The new Charter of Accounts will allow to broaden depth and comprehensiveness of financial data and bank statistics which in its turn will increase capacity of monetary and financial analyses.

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Strategic objective 9. To establish a modern management system of internal support services 9.1.

Form a new-age management system of support services

9.2.

Construct a new building of the Bank

In order to establish a modern management system of support services, internal services planning, organisation, and evaluation will be impoved in quality and standards. Construction of a new building of the Bank will enable to further improve physical work stations and corporate working environment in the Bank, provide business processes under the most up-to-date standards and considerably boost productivity of professional performance.

“In our thoughts the ideal image of a Central Bank of XXI century is - a reliable, transparent and modern public institution, owning contemporary management practices, developed human capital, high corporate values that effectively contribute to the achievement of its mission thus serving the well-being of a society ”. E. Rustamov

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