One and a half decades after the end of a centralised regime in Central and Eastern Europe, the policy literature on local debt management in transition economies reveals that there is a general confusion about the appropriate use of debt finance at the municipal level. The literature is mainly concerned with institutional borrowing restrictions and sanctions against excessive debt. Both emphasise the responsibility of the centre and consider local government unable to pursue a sound financial management without central patronage. Breaking with the discipline, this study advocates traditional focus on budget responsibility. Favourable credit ratings and compliance with legal norms budget are necessary but not sufficient conditions for municipalities to borrow. Successful financial management requires a more proactive attitude in which local governments adjust their investment policy to their financial capacity, assessing the costs and benefits of each investment project.