Abstract
The conducted research proposes a system of financial ratios as part of a composite index to assess the sustainability and adaptability of municipalities, which includes analysing the structure and dynamics of budgetary indicators. The purpose of the study was to develop a methodology aimed at identifying factors affecting financial sustainability and providing practical recommendations for improving the sustainability of municipalities in a volatile economic environment. The methodology of the study included an analysis of the state of municipal finances, an assessment of budgetary resources, the identification of risks and the development of measures to minimise them based on financial statements, interviews, and expert assessment of key indicators. The study identified key indicators of the financial stability of Latvian municipalities, including the level of independence from inter-budget transfers and the ratio of own expenses to income. Based on the results obtained, it was determined that municipalities with a high share of their own income demonstrate a better ability to adapt to economic shocks. In turn, the regional analysis highlighted significant differences in the structure of income and expenditure, where municipalities that were more dependent on transfers faced budgetary planning constraints. In addition, the use of the coefficient system helped to assess financial stability, both in static and dynamic terms, identifying the risks associated with a high debt burden and low liquidity. Due to the fact that the research methodology was based on the analysis of financial statements and expert assessments, it provided the development of a composite index for risk forecasting. Thus, the results highlighted the need to increase the financial autonomy of municipalities and optimise debt policy. The proposed recommendations of the study were aimed at reducing regional disparities and strengthening the financial stability of local budgets. The importance of the findings lies in providing tools that allow developing sound recommendations for improving budget management and adapting to economic challenges
Keywords
financial stability; organisational stability; composite coefficient; economic challenges; regional imbalances; economic adaptability
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