THE economic downturn has had a negative impact on plans to fund the Ulster Canal, the Government said.
Significant income was expected to be raised to cover the cost of the cross-border route by selling Waterways Ireland assets but the recession has set matters back.
Planning permission to reopen the 8.7-mile (14km) route from Lough Erne in Co Fermanagh to Clones in Co Monaghan has been granted by the authorities north and south of the border.
New towpaths and bridges will be created as part of the €35m work, which is expected to take three years.
The Ulster Canal is a disused waterway running through parts of Counties Armagh, Tyrone, Fermanagh, Cavan and Monaghan. It originally linked the Lough Erne river system to Lough Neagh but has not been used since 1929.
The Government has agreed to cover the full cost of building the canal but it was always the intention that the project would be funded from the annual allocations to cross-border body Waterways Ireland, the Department for Arts, Heritage and the Gaeltacht said.
A key consideration throughout the process was that the canal project would be supported by a significant level of projected income from the commercialisation of certain Waterways Ireland assets, the spokeswoman added.
"However the economic downturn has had a negative impact on those plans," she added.
"Despite this, the Ulster Canal project is progressing incrementally. Options are being explored for progressing the project in the light of the fiscal and budgetary position."
An inter-agency group on the canal was established by Minister Jimmy Deenihan to explore possible funding options. Its next meeting is scheduled for this month.
Planning approval has been given by Clones Town Council and Monaghan County Council, likely to be confirmed early this month, and Northern Ireland's Planning Service announced its approval last week.