There is no doubt Ireland is facing an unprecedented sovereign debt crisis, says Jonathan Williams. But is liquidating the National Pensions Reserve Fund the best way to solve the problem?

For several years now, Ireland's National Pension Reserve Fund (NPRF) has been something of an all-purpose saviour. First, funds were used to recapitalise the ailing banks, then it was tapped for Ireland's bailout agreement with the EU and the IMF, while simultaneously having to contribute a substantial sum towards installing water meters across the country.

In light of these investments, the NPRF's future looks uncertain, with the latest accounts for 2010 showing that only €4.9bn of €24bn is left in its discretionary portfolio, and even that has been earmarked for various stimulus measures, including the acquisition of Irish debt.

Not many people would argue against the cash injection that led to the NPRF holding a 93% stake in Allied Irish Bank, or injecting several billion euros into Bank of Ireland. However, with future public pension obligations at well over €100bn, the question is whether the right balance has been struck between short-term survival and the long-term sustainability of the pension system.

The move seems pretty incongruous, as only three years ago the taoiseach, Brian Cowen, who was then minister for finance, praised the creation of the sovereign fund as judicious and farsighted. He said that the €21bn in assets held at that time would help ease any funding concerns the government might have over future obligations, but admitted that the sum still fell far short of what was required.

Industry figures have been saying for months now that the scheme's purpose has changed irrevocably, with the financial crisis doing away with the notion that assets should not be drawn down before 2025 to help address the public sector pension deficit.

Some, such as Jerry Moriarty, director of policy at the Irish Association of Pension Funds, have branded it a victim of the recession. He claims that the political parties likely to rise to power following the upcoming election have already singled out what remains in assets for various economic incentives. "It does seem to be viewed as a treasure chest, rather than the kind of long-term fund it was meant to be," he says.

Indeed, the recent Credit Institutions (Stabilisation) Bill granted the minister for finance - currently Brian Lenihan - additional powers over any of the NPRF's funds, giving him (and future governments) free rein to use the assets for job-creation measures or infrastructure products.

The National Treasury Management Agency (NTMA) seems to acknowledge that this leaves the scheme with few options. After revealing that the remaining assets are likely to go towards growth-creating projects, it said: "The implications of these developments for the fund's operations and investment strategy are being considered by the NPRF Commission".

The question now is what does the future hold for the NPRF. Its assets have been all but drawn down, with what remains likely to be spent by an incoming government, elected on a mandate to tackle the country's deficit and unemployment following the demise of Cowen's coalition government. The pressure for a quick solution will be immense, and those politicians who set out to improve the country's fortunes in, say, 15 years' time are unlikely to win much airtime.

But Ireland's reserve fund could recover if given the chance. Its discretionary portfolio grew more than 11% last year. And while the NTMA is unlikely to adopt an investment strategy that would see the remaining €5bn grow to more than €25bn over the next 15 years, a steady hand could help an already indebted country from avoiding further debt, at a time when pension obligations loom large.

A fund originally designed to be out of the reach of politicians has instead become ripe for spending, not to mention a political football. The current government is about to score an own goal for the Irish people.