Press release
Government approves drafting of Rainy Day Fund Bill
Published on
Last updated on
Published on
Last updated on
Fund aims to strengthen public finances and improve Irish economy’s resilience to external economic shocks
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, today (Wednesday) welcomed the Government’s decision to approve drafting of a Rainy Day Fund Bill.
Announcing the decision, the Minister said:
"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. Setting up the Fund is part of a prudent budgetary and financial strategy, and will fulfil an important commitment in the Programme for a Partnership Government."
Minister Donohoe set out his plans for the Rainy Day Fund in the Summer Economic Statement 2017, and again in Budget 2018.
His intention is to transfer an initial tranche of €1.5 billion from the Ireland Strategic Investment Fund (ISIF), with further annual contributions of €500 million each year from 2019 to 2021. This will see the Rainy Day Fund reach €3 billion by the end of 2021.
The purpose of the Fund is to act as a counter-cyclical buffer to protect against severe economic shocks. The proposals also allow the annual €500 million to be held as an in-year "contingency reserve" so that, in the event of an unforeseeable natural or other disaster, some of the annual contribution may instead be spent on remedying the effects of that event.
Commenting on the Fund, the Minister said:
"We have seen in our recent history just how vulnerable Ireland is to external economic shocks. We have worked very hard to stabilise our public finances, and it is vital that we build on this work and put in place longer-term mitigation strategies that can help protect us against extremes in the economic cycle. I intend to advance this legislation as soon as possible to achieve this goal."
ENDS
The purpose of the Rainy Day Fund is to mitigate severe economic shocks, in excess of the normal fluctuations of the economic cycle. In view of the unpredictability of such events, the Minister does not propose detailed economic triggers: this is to ensure that time-lags in assessing such triggers do not operate to make the Rainy Day Fund essentially inaccessible in case of need.
The drawdown criteria will be based on an assessment by the Department of Finance. Based on this the Minister of the day may ask Government to decide that drawdown is justified; if Government agrees, the Minister will then seek a resolution of the Dáil authorising drawdown of funds to the Exchequer.
This process ensures that Dáil Éireann will be fully involved in any future decisions regarding drawdown, and further decisions on expenditure of the monies will be subject to voted expenditure procedures.
The in-year contingency reserve is intended for events which are not reasonably foreseeable, such as, for example, a recurrence of foot-and-mouth, or multiple very severe weather events.