The Irish government is to launch a reserve fund and may partially support the scheme with assets from its existing sovereign development fund, the Ireland Strategic Investment Fund (ISIF).

Releasing the summer economic statement earlier this week, minister for finance Michael Noonan said the government would stand by its pledge in the programme for government to launch the so-called rainy day fund.

Noonan said that, from 2019, at which point the government is expecting to run a balanced budget, it would put aside €1bn a year to be used to offset any future economic slowdown with potential stimulus measures.

Documents released as part of the economic statement say: “Proposals for the operation of the rainy day fund and the circumstances under which the amount would be deployed as a fiscal support for the economy will be developed.”

The document adds that the Department of Finance will issue a consultation by early next year detailing the “proposed operational modalities, including inter alia the trigger for deploying the fund”, with details to be discussed with the Oireachtas, Ireland’s parliament.

“The government,” it continues, “will also consider the merits of using any one-off receipts (such as windfall corporate tax receipts – or, indeed, other windfall tax revenues) or part of the Ireland Strategic Investment Fund to capitalise the rainy day fund.”

The Irish Fiscal Advisory Council, a statutory body offering independent assessments of government policy, has supported the establishment of a rainy day fund.

The council’s most recent report from the beginning of June notes that such a fund could help successive governments withstand pressures to relax fiscal policies in times of a budget surplus. 

It adds: “An appropriately designed rainy day fund could give the government scope to operate counter-cyclical fiscal policy to boost the economy during future downturns.

“It could also help the government to avoid the need for forced fiscal consolidation in the event of a sudden loss of market access.”

A spokesman for the Department of Finance was unable to say whether financing would come from the €7.9bn segment of the ISIF being used to stimulate economic growth, or if funding would be diverted from the directed portfolio, used by the government in 2009 to buy stakes in Allied Irish Banks (AIB) and Bank of Ireland.

He noted that any decision on use of ISIF funding would be discussed by parliamentarians when the consultation got underway.

ISIF’s directed portfolio was most recently valued at €13.5bn and returned 15.3%, partially aided by a revaluation of AlB to €4.33 per share, up from 1.3 cents per share in 2014.

The discretionary portfolio, meanwhile, which sees investments scrutinised by an independent investment committee chaired by former HSBC North America chief executive Brendan McDonagh, returned 1.5% last year and has committed capital to a number of projects that aim to boost economic growth.

The National Treasury Management Agency’s former chief executive John Corrigan has previously predicted capital within ISIF’s discretionary portfolio would be committed within five years, meaning the majority of the portfolio’s capital is likely to be deployed by the end of 2019. 

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