Irish pension funds are in talks with the government about investing in a new "infrastructure bond" which would allow the state to get financing off its balance sheet, an industry group said yesterday.

Ireland is struggling to contain its budget deficit - which the government projects will be 10.75 per cent of gross domestic product in 2009 and proportionately the highest in the euro zone - and to breathe life into an economy which is expected to contract about 8 per cent this year.

The Irish Association of Investment Managers (IAIM) said the talks focused on creating one or more companies to act as a vehicle for investment in a range of infrastructure projects from water and roads to schools and energy.

The projects would be financed by the issuance of a special bond as well as regular debt and equity, said IAIM chief executive Frank O'Dwyer.

"Globally (among) pension funds there is clearly a trend towards more fixed income products with longer maturities," O'Dwyer told Reuters. The finance ministry said it was in talks with pension funds with the intention to "access funds that will support jobs in projects that offer value for money for the state". It declined to comment further.

The Irish Times reported that pension funds would be willing to invest up to €6 billion over the next three years in infrastructure projects as part of a plan that could secure up to 70,000 jobs in the construction industry.

O'Dwyer said he could not confirm the €6 billion amount.

"The payments would flow over 15-20 years," he said of the new bond, adding that exact maturities were still to be worked out with the government.

He said the instrument would be seen as a "quasi-gilt" from a risk perspective as the state would support it and remain the main user of the assets to be built, such as schools or roads.

Funds were particularly interested in environmental projects such as renewable energy generation, he added.