International Journal of Economics and Finance; Vol. 6, No. 11; 2014 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 197 The Financial Conditions and Prospects of the Municipality of Bitola, Republic of Macedonia Nikolche Jankulovski 1 , Katerina Bojkovska 1 & Goran Mihajlovski 1 1 University St. Kliment Ohridski, Bitola, Republic of Macedonia Correspondence: Nikolche Jankulovski, University St. Kliment Ohridski, Bitola, Macedonia, ul.140 br.8 Bitola, Macedonia. Tel: 00389-75-401005. E-mail: nikolcejankulovski@yahoo.com Received: August 3, 2014 Accepted: August 14, 2014 Online Published: October 25, 2014 doi:10.5539/ijef.v6n11p197 URL: http://dx.doi.org/10.5539/ijef.v6n11p197 Abstract 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. Keywords: financial conditions, income, budget, risk, Bitola 1. Application of the Model for Assessment of the Credit Condition of the Municipality of Bitola To make good assessment of the credit condition of the Local Self Government Unit (LSU) it is necessary to perform financial analysis over revenue and expenditure budget for the past several years, and to analyze the other factors that affect the solvency of the LSUs. 1.1 Financial Analysis on the Basis of the Materialized Budgets in the Municipality of Bitola This analysis is made on the basis of data on the Budget of the Municipality of Bitola for the period 2009–2012 year. The fiscal indicators are calculated for revenue, expenditure, capital receipts and capital expenditures, as well as the indicators of population. According to the analyiss (Table 1), we conclude substantial level of flexibility in terms of revenue. The Municipality of Bitola during its operations in the past three years, notes relatively low level of dependence on central transfers illustrated by the continued rise of its own revenues in total revenues, from 68.7% in 2009. of 70.7% in 2010, 73.5% in 2011 and 75.5% in 2012. At the expense of that, as expected, the impact of transfers from the central government is reduced from 31.3% in 2009 to 29.3% in 2010, 25.7% in 2011 and 25.5% in 2012