The council said it was fully committed to improvement

The council has made a good start on only spending what it raises, according to a report by the Accounts Commission.

However, the commission said that despite spending cuts, the council still had to show that its use of reserves was falling.

The council said in response that it was fully committed to continuous improvement.

The report follows a critical report by the commission in 2005, which depicted an island community trying to come to terms with leaner times, a shrinking population, fishing in recession and oil revenues in decline.

The council has no loan debt and has investments that have increased.

We are always going to have to work hard to address some of the particular challenges that Shetland faces Morgan Goodlad Shetland Islands Council chief executive

Alastair MacNish, chairman of the Accounts Commission, said: "Shetland Islands Council has now made a good start on addressing best value.

"However, we urge the council to increase the pace of change in delivering its improvement plan."

In response, Shetland Islands Council said it was pleased that significant progress had been made on the key priority areas.

Chief executive Morgan Goodlad said: "We are pleased that the Accounts Commission acknowledges our progress. We are not surprised that we are now being urged to do more, faster, that is the nature of continuous improvement.

"We are always going to have to work hard to address some of the particular challenges that Shetland faces.

"However, the progress made, especially in service and financial management, has put us firmly on the right track to make sure the council can deal with these effectively."

Shetland Island Council will consider the progress report in detail over the next few weeks.