The Donegal North East deputy issued a statement insisting the coalition government is committed to the project.
News that funding is being withheld was leaked by Stormont Minister Sammy Wilson.
Said Deputy McHugh: “On the Dáil record the Minister for Transport Leo Varadkar said that the Government remains politically committed to the A5 project, and that he expects work on the road to commence during the lifetime of the 2012-2016 capital programme.
“That is a concrete statement by the Minister for Transport. The A5 project is live, and will proceed.
“I am in ongoing contact with Minister Varadkar about the A5 project, and I also raised the matter with Members of Westminster’s Northern Ireland Select Committee.”
The Government will formally withdraw funding at a north-south ministerial meeting next week.
It’s thought the delay could be up to three years.
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