To keep Ireland’s economy and public finances in check during a downturn, its government has approved the drafting of a rainy day fund bill.
Paschal Donohue, the Ireland’s minister for finance and public expenditure and reform, had initially laid out his plans for the rainy day fund in last summer’s economic statement, and again in the nation’s 2018 budget.
“The Rainy Day Fund is an important element of this government’s strategy to strengthen public finances and improve the Irish economy’s resilience to external economic shocks,” Donohue said in a release.
The fund, which will shield Ireland from severe economic shocks, will receive an initial deposit of €1.5 billion ($1.76 billion) from the country’s sovereign wealth fund, the Ireland Strategic Investment Fund. Afterward, annual payments to the fund thereafter may come from the Irish Exchequer. The new proposals will also allow that €500 million to be held as an “in-year contingency reserve” so that a sudden disaster (natural or otherwise) can be dealt with swiftly.
The rainy day fund is projected to be at €3 billion ($3.5 billion) by the end of 2021. Donohue told the Newstalk radio station that his medium-term plan sees the fund holding up to $9.3 billion. He did not mention the long-term goals.
The drawdown criteria for the fund will be based on an assessment by the department of finance. According to the release, ministers can ask the government to justify the drawdown, based on those standards. If the government feels it is justified, the minister will then need the Dáil Éireann, Ireland’s lower house, to authorize the drawdown of funds to the treasury, who will have full involvement in any future drawdown decisions.
“We have seen in our recent history just how vulnerable Ireland is to external economic shocks,” said Donohue, who noted that it was “vital” to making sure the framework to prevent those shocks is expanded upon. He said that he intends to advance the rainy day fund plan “as soon as possible to achieve this goal.”