Initially, the formation of a new government was welcomed. Post-election negotiations took longer than expected and the political deadlock threatened to put at risk the country’s fragile recovery after six years of recession. Meanwhile the selection of a new prime minister from business - Oreskovic is a former pharmaceuticals executive – gave hope that improvements to the business environment were on the way.

Now, however, there are disagreements between Most and HDZ. Most is reportedly demanding the right to appoint all lower-ranking officials in the ministries run by its members, even though there was allegedly an initial agreement between the two parties to mix officials from both parties in every ministry. HDZ is not willing to accept this demand, according to Total Croatia News.

Moreover, the news portal reported at the end of January that HDZ is unhappy with its coalition partners and with the fact that Oreskovic’s cabinet started its term with a scandal and a resignation. “We have not yet started to govern, but Most has already forced us to get rid of a minister,” a source within HDZ said. Moreover, a HDZ MP has said that Most “acts more like the opposition in the government”.

On top of all this, there were claims in the local media that Bozo Petrov was planning to withdraw from the Most leadership, though the rumours were later denied by the party.

HDZ sources claim that Most is likely to question decisions made by HDZ ministers in the future in order to gain more popularity and send the public the message they are keeping an eye on their coalition partner. Moreover, the sources said, designating a non-partisan minister was intended to also weaken the position of HDZ leader Tomislav Karamarko.

Teething problems

However, other Most and HDZ members claim these are just teething problems and that both parties will understand they are part of the same team.

Despite the internal difficulties, Oreskovic has pledged to raise living standards and boost employment, while at the same time he has taken on the difficult task of cutting the deficit and state debt. Croatia’s state debt reached 85.9% of GDP in the third quarter of last year, while the deficit is expected to have reached around 4.5%-5% of GDP in 2015.

In an interview with Croatian Public Radio, he said in early February that the priority for this year’s budget is to reduce debt and to bring the deficit closer to 3% of GDP. Oreskovic has outlined plans to start tackling public debt by selling off assets and introducing a new property tax.

“Then we will look at where we can increase investments. We have enough space for growth regarding EU funds, and the investments will stimulate growth,” he said according to Total Croatia News.

The new cabinet should benefit from last year’s economic recovery, which was supported by increased industrial output and rising investment. According to the country’s central bank, GDP is expected to have expanded 1.7% last year and the growth should accelerate to 1.8% in 2016. Industrial production has also recovered, rising 2.6% on the year in 2015, supported by a 3.5% hike in the manufacturing sector and 5% in mining. Output in the electricity sector, however, fell 5.6%.

Tourism also performed better than in previous years, benefitting from political instability and security issues in rival destinations such as Greece, Turkey and Egypt. Last year, the number of tourists visiting the Adriatic country rose 9.3% y/y to 14.3mn. Croatia earned more than €8bn from foreign tourists alone in 2015, according to Oreskovic.

Now, the new cabinet plans to improve these indicators by promoting reforms. But it remains to be seen if the new government will be able stay united over the following four years and implement the planned reforms. Any divisions within the coalition will only damage Croatia’s latest effort to return to growth.