The issue of financial stability and sustainability affects the autonomy of local governments and their fulfilment of delegated obligations. This paper examines the financial stability of Bulgarian rural municipalities and the impacts of the economic, demographic and economic factors on their financial performance. It covers all 231 rural municipalities in Bulgaria. The purpose of this paper is to explore the capability of local governments to fulfill the financial indicators which are defined by the Bulgarian Public Finance Act (2017). The author proposes a model for the assessment of financial stability of rural municipalities that can be used by local authorities at all levels for monitoring the financial management of rural municipalities and for evaluating their propensity to follow defined fiscal indicators.