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FILE PHOTO: Leo Varadkar makes his acceptance speech at the count centre as he wins the Fine Gael parliamentary elections to replace Prime Minister of Ireland (Taoiseach) Enda Kenny as leader of the party in Dublin, Ireland June 2, 2017. REUTERS/Clodagh Kilcoyne/Files

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DUBLIN (Reuters) - Ireland's prime minister designate Leo Varadkar is to scrap plans to set aside 1 billion euros ($1.1 billion) per year into a "rainy day fund" and will instead use the resources to fund infrastructure, the Sunday Business Post newspaper reported.

Finance Minister Michael Noonan, who is to step down once Varadkar is confirmed as Ireland's new prime minister by parliament next week, announced the creation of the contingency fund last year, with the first 1 billion euros to be put aside in 2019.

The aim was to build up a fund that could be used to cushion against any future economic shock.

Ireland's economy has posted the fastest growth in the European Union for the past three years, but economists have warned that a failure to invest in housing, transport and other infrastructure could damage the economy.

Varadkar said a contingency fund had merit "in the longer term" once a planned capital investment plan had started to take effect, the newspaper reported.

"We are a young country with a growing economy and we need room to expand," Varadkar was quoted as saying by the newspaper.

Varadkar's office did not immediately respond to an emailed request for comment.

Varadkar last month said he wanted to lower an ambitious debt reduction target set last year, in order to free up more funding for infrastructure projects.

Noonan pledged last October to cut the state's debt as a proportion of gross domestic product to 45 percent by the mid-2020s or later, but Varadkar said he would amend the target to 55 percent of GDP to allow for greater capital investment.

Ireland's debt-to-GDP fell below 80 percent from 94 percent at the stroke of a pen last year when GDP growth for 2015 was adjusted up to 26 percent after a massive revision to the stock of capital assets.

The national debt remains among the highest in the euro zone by most other measures.

(Reporting by Conor Humphries; Editing by Keith Weir)

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