The Minister for Finance, Mr McGreevy, should borrow up to €3 billion next year to ease the bottlenecks in the country's roads and public transport system, a leading economist declared yesterday.

Friends First chief economist, Mr Jim Power, predicted that the Minister would have room to take a "revolutionary step" on capital spending in the Budget.

Launching his latest quarterly economic outlook, Mr Power said Mr McCreevy would come close to achieving his Exchequer borrowing target of €1.9 billion, or 1.4 per cent of gross domestic product (GDP).

He added that the measure favoured by the EU, the general government deficit (GGD), would come in at around €900 million or 0.7 per cent of GDP.

Mr Power pointed out that this would be comfortably within the EU's Stability and Growth Pact limit of 3 per cent of GDP.

"I think there's a very strong argument to be made for pushing borrowing out to 3 per cent," he said. "This would allow an extra €3 billion to be borrowed and released for spending on roads and public transport."

Mr Power stressed that this money would have to be spent in a productive, "value for money" way. He criticised the Government for focusing on advertising how much it was spending on infrastructure projects, without detailing what it was getting return for the expenditure.

The economist warned that the failure to deal with the country's poor infrastructure was a threat to competitiveness.

He also stressed that cutting back on research and development (R&D) spending would not be good for the economy in the long term.

He said that the outlook for growth was more positive than three months ago. Mr Power said that there had been a turnaround in real profit growth in the US. This was driving an increase in investment, particularly in information technology and software.