Most of the literature on managing local public debt in Central and Eastern Europe is concerned either with the existing institutional restrictions on borrowing, or with sanctions against excessive debt. One common feature of these approaches is that they place the role and responsibility of the central state in the forefront while considerino local government performance as a dependent variable. The present study drops the traditional analytical perspective of budget discipline and focuses instead on the budget responsibility (or self-control) of local governments. It argues that compliance with the legal norms and a favourable rating at the bank are necessary but not sufficient conditions for a municipality to incur debt. Success in the overall financial management requires a more proactive attitude in which local policymakers adjust their investment policy to the actual debt capacity of the local government assessing the short, medium and long-term costs and benefits of each investment project.