Moody's says Faroe has successfully handled the challenges of managing an economy dependent on deep sea fishing and has achieved solid financial results over the past decade.

The country is expected to have a surplus of at least eight per cent for the past 12 months. This is in stark contrast with Iceland's recent financial turbulence, which has seen interests rates soar to 15 per cent and a crash in the value of the krona.

In its rating, Moody's has considered the Faroe Islands' high reliance on fishing and fish-related industries, especially for export income.

Economic volatility and its effect on tax revenues are therefore expected to remain substantially higher than those of Denmark and its regional governments.

"The Faroese government has dropped subsidies to businesses and ended the use of guarantees, which had contributed to the economic crisis of the early 1990s. The Faroe Islands, which catches over 600,000 tonnes of fish a year, is now much more resilient, as the economy in general and the fishing industry in particular are increasingly diversified," says associate analyst Mattias Frithiof.

In fact, the Faroese fishing industry has been enjoying a revival in the past two or three years with exports up by a quarter to around 80 million euros (£62-million). The UK is probably the country's biggest market for cod and haddock, but salmon exports are also growing.

For the Faroe Islands, a Danish autonomous archipelago of 48,000 people, fishing has been the mainstay of the economy since the end of the 19th century.

In numerous other countries fishermen, biologists and authorities have long debated the best way to exploit fishing stocks, but the Faroe Islands stand out with their unique system which is mainly based on the number of days boats spend at sea rather than block catch quotas.

The system, say fishing experts, comprises special measures to help stocks reproduce, such as closing off certain zones either temporarily or permanently. For example, the biggest trawlers are prohibited from fishing within 12 nautical miles of the archipelago. In the next step in its ecological fishing policy, Faroese fishing authorities are currently developing an electronic tracking system which is being introduced this year.

In a slightly more conservative assessment on the Faroese fishing industry, the Icelandic bank Landsbanki Foroya said the country was very sensitive to international markets for fish, which meant that exports could fluctuate significantly from one year to the next. However, the upward spiral in fish prices had also resulted in higher export values.

But today the catching industry no longer relied on heavy subsidies, although fishermen did receive generous tax breaks. A debate was now going on about whether to sell fishing rights rather than hand them out freely.

The Landsbanki report also said that the Faroese fish farming (aquaculture) industry was growing with about 24,000 tonnes of farmed seafood expected this year - an increase of some 5,000 tonnes.

Research into the farming of cod and halibut was proving that it could be commercially viable.

Overall, the bank said the fishing industry was moving in a generally positive direction, but added that oil exploration was likely to play an increasingly significant role.

www.fishupdate.com is published by Special Publications. Special Publications also publish FISHupdate magazine, Fish Farmer, the Fish Industry Yearbook, the Scottish Seafood Processors Federation Diary, the Fish Farmer Handbook and a range of wallplanners.

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