Ireland’s post-2007 economic crisis has given rise to persistently and historically low rates of investment, high unemployment, large public and private sector debt overhangs, tight fiscal constraints, and a breakdown in financial intermediation. Lack of investment by the domestic private and public sectors both exacerbates the shortfall in domestic demand in the short-term and undermines the economy’s productive capacity in the long-term. Despite significant public investment during the 2000-2008 period, Ireland still faces infrastructure gaps that may constrain the next phase of economic recovery and sustainable growth. This infrastructure deficit is particularly severe in terms of green energy, next generation broadband, secondary roads, water treatment, and waste management. Refurbishing, rebuilding and retrofitting schools and the social housing stock are also activities that promise a high social and economic dividend in the current environment. Despite their increasing salience on the policy agenda in more recent years, Irish SMEs face particularly onerous credit constraints, restricting their capacity to invest and grow. Given fiscal constraints, the government’s capacity to address these policy challenges is limited, necessitating the design of innovative funding instruments and a re-orientation of institutional capacity. Ireland could benefit from a fully functioning national development bank to leverage private sector investment in strategically important infrastructure and SME lending. This paper examines successful international models for such investment banks, both long-standing and newly created. It sets out policy options for the short and medium term to address the infrastructure deficit, support SME lending, and move towards phase two of the proposed Strategic Investment Bank.
