Fixing Economy Tops Agenda as Croat Cabinet Seeks Approval

  • Coalition agrees to tackle budget deficit, public debt
  • New coalition government seeks take reins after confirmation

Croatia’s next government plans to cut the budget deficit, attract investment and secure a credit-rating upgrade from junk status, seeking to further lift the Adriatic state out of a record recession, Prime Minister-designate Tihomir Oreskovic said.

Oreskovic, a former pharmaceutical executive, is vying to become the first prime minister who doesn’t hail from the two parties that have dominated Croatia since it broke away from Yugoslavia in 1991. In a speech before a parliamentary confidence vote, the technocrat appointee pledged to overhaul the economy and tackle a debt burden that doubled to above the European Union average when an economic downturn wiped 12 percent off the economy from 2008 to 2014.

“We plan to attract foreign-direct investment of 1 billion euros in the next four years,” Oreskovic told parliament on Friday. “We also promise we will overhaul the economy and improve our credit rating by 2017.”

While his nomination broke a six-week deadlock among political parties following inconclusive elections, Oreskovic must depend on votes from independent lawmakers to win the confidence vote slated later on Friday. With his two-party coalition commanding 74 of parliament’s 151 seats, he’ll also need them to back his economic restructuring measures following years of reluctance by the country’s dominant political powers if he takes office.

First Test

“The new government’s first test will be the budget plan for 2016, which they need to bring by end-March,” said Zeljko Lovrincevic, professor at the Economic Institute in Zagreb. “Here we’ll see whether they plan fiscal cuts and how those plans will fare among their coalition partners and in parliament.”

Backed by the Bridge party, known as “Most” in Croatian, Oreskovic is also supported by the HDZ Croatian Democratic Union. The two parties agreed to rule together after Bridge leveraged its third-place finish in the inconclusive Nov. 8 vote to play the role of kingmaker and insisted on naming a non-partisan prime minister. The parties will sign the coalition agreement during Friday’s confidence-motion session in parliament, Croatian state TV reported, citing a HDZ spokesman.

Raised in Canada and holding dual citizenship, Oreskovic, 49, pledged to sell state-owned companies and cut the budget deficit to below the EU’s ceiling of 3 percent of gross domestic product by 2017. The Finance Ministry sees the fiscal shortfall falling to 3.9 percent of gross domestic product this year, from 5 percent in 2015.

Oreskovic’s plan has won investors’ blessings, as the bonds of the EU’s youngest member have outperformed most emerging markets since his nomination in December. The yield on government Eurobond maturing in 2022 fell nine basis points to 3.608 at 4:44 p.m. in Zagreb on Friday.

Economic Overhaul

Oreskovic has tapped Zdravko Maric, a former executive in Agrokor, the largest retail company in the Balkans, for the position of finance minister. Maric, 38, also served as Finance Ministry state secretary under a HDZ-led government between 2008 and 2011. HDZ leader Tomislav Karamarko was nominated as deputy prime minister along with Bridge leader Bozo Petrov.

Bridge is pushing for an economic overhaul after Zoran Milanovic’s Social Democrat-led government canceled highway and energy exploration tenders and forgave the debts of the poorest Croats amid the economic downturn. The government that preceded Milanovic’s, led by HDZ, lost a 2011 election after a graft scandal that resulted in the conviction of former Prime Minister Ivo Sanader.

Croatia’s central bank raised its 2015 economic growth estimate last month to 1.7 percent and predicted a 1.8 percent expansion for this year. The country’s debt is rising, fueled by swollen deficits during the six-year slump. It will rise to 92 percent of GDP this year, from 90.5 percent in 2015, compared with an the EU average of 86.9 percent, according to the European Commission.

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