June 17, 2017 / 12:37 PM / a month ago

Irish finance minister to review 'rainy day fund', backs new debt target

3 Min Read

Irish Minister for Public Expenditure Paschal Donohoe speaks during an interview with Reuters at the Ministry of Finance in Dublin, Ireland September 22, 2016.Clodagh Kilcoyne/Files

DUBLIN (Reuters) - Ireland will review plans laid out last year to establish a contingency reserve by examining how much should be set aside each year and whether it should start in 2019 as planned, new Finance Minister Paschal Donohoe told Reuters on Saturday.

Donohoe's predecessor Michael Noonan had pledged to save 1 billion euros a year in the new "rainy day fund" once Ireland's budget is balanced, arguing it was a crucial way to protect Ireland's open economy from unforeseen events.

The Sunday Business Post newspaper reported that new Prime Minister Leo Varadkar would scrap the plan, quoting him as saying a fund had merit "in the longer term" once a more ambitious capital investment plan had taken effect.

"This is one of the concepts we will be examining now in the coming weeks and months. Leo never said he was against the rainy day fund, he merely and correctly asked questions regarding the rate at which we build it up and when we begin doing it," Donohoe said in an interview on the sidelines of a conference.

"This is one of the options that I will be examining to see how we can deliver a meaningful capital plan."

Ireland's economy and population are growing faster than anywhere else in the European Union and Varadkar wants far greater investment in infrastructure after capital spending ground to a near halt during the financial crisis and remains among the lowest in the bloc.

Noonan's plans had laid out that, of the additional budgetary funds available from 2019-2021, more than twice as much would be saved in the rainy day fund as added to the capital budget.

Donohoe said that Ireland's demographics were so different to the European norm that if it did not generate the capacity to invest, it will impair the ability of the economy to grow and pose "really stark social challenges."

Donohoe backed Varadkar's plans to free up additional resources by setting a less ambitious debt reduction target than the one set last year, a policy that was questioned by the chief economist in Donohoe's new department this week.

The new finance minister said that he will outline plans in the coming weeks about how the government will maintain discipline in its current spending and deliver a balanced budget.

Donohoe, who succeeded Noonan on Wednesday while also retaining his existing budgetary portfolio of public expenditure, also welcomed signs of a potential softening of Britain's Brexit plans after meeting his British counterpart Philip Hammond at a meeting of EU finance minister on Friday.

"My sense is that the form of Brexit that the British government is now considering due to the change in the House of Commons and due to the debate within the Conservative Party is now evolving," Donohoe said.

"Certainly to hear now concepts of an open Brexit, a business friendly Brexit and a prudent or sensible Brexit is a development that could potentially help Ireland in responding back to the challenges that are coming up."

Reporting by Padraic Halpin; Editing by Adrian Croft

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