Ireland is to cut a planned "rainy day fund" to 500 million euros from 1 billion to allow for more capital investment in the economy, Irish Finance Minister Paschal Donohoe said on Wednesday.

Donohoe's predecessor Michael Noonan last year pledged to save 1 billion euros a year in the new contingency fund once Ireland's budget is balanced in 2019.

But Donohoe told Ireland's RTE radio he planned to cut that to 500 million euros and would use the other 500 million for more capital investment.

"I believe the appropriate way of doing that is to put in 500 million euros a year across those years to manage the kind of shocks that may develop externally and at home," Donohoe said.

"But what we are doing differently is we are saying we are going to put a further 500 million into increased capital investment in the country."

Priorities for spending include housing, public transport and meeting Ireland's climate change targets, he said.

Donohoe was appointed last month by Ireland's new prime minister Leo Varadkar who has set increased capital investment as a key priority for the country.

With Ireland's economy and population growing faster than anywhere else in the European Union, Varadkar wants far greater investment in infrastructure. 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, once Ireland eliminates its budget deficit, more than twice as much would be saved in the rainy day fund as added to the capital budget.

Donohoe told Reuters in an interview last month that Ireland's demographics were so different to the European norm that if it did not generate the capacity to invest, it would impair the ability of the economy to grow. That would pose "really stark social challenges", he said.

Donohoe told RTE Ireland's economy would grow by around 4% this year, falling to 3.75% in 2018. (Reuters)

Source: www.businessworld.ie