Funding is the most important instrument in the implementation of local economic development. Municipalities in the Republic of Macedonia are constantly facing the shortage of funds for implementation of their ongoing activities, and for undertaking new project assignments. In this regard, despite funding from their own resources, the municipalities have funds received by transfer from the central government, donations and funds raised through borrowing made by the local businesses. The financial assets that can be obtained from the EU (European Union) funds, public–private partnerships and the issuance of municipal bonds are incipient. In this regard, the local municipal authorities should combine multiple opportunities to fund projects that will provide better living standard of the population and rapid economic development of the municipality. The basic working hypotheses for this paper include the following:

- Municipalities, as independent territorial units, have the opportunity to create their own policies to implement projects that will bring positive changes in the daily life of the population;

- Possible implementation and creation of sustainable local economic development and

- Local authorities in the Republic of Macedonia can successfully combine and consistently manage the financial instruments that are available and which are the reason for falling behind of the overall development of the municipality. It can be an encouraging incentive for research on the actual situations and prospects for successful combining of the financial instruments.

For obtaining funds from the international financial organizations such as the World Bank and the International Monetary Fund , the credit rating that the municipalities enjoy is very important as well as their fiscal capacity that could withstand these borrowings. These two indicators, the fiscal capacity and the credit rating of the municipality, specifically of the Municipality of Bitola are studied in this paper. By borrowing through credit lines there is a risk for refund. Therefore, categories and indicators of the credit risk of municipalities are also covered.