General view as Kaja Kallas, Prime Minister of the new Estonian government, addresses an extraordinary parliamentary session in Tallinn, Estonia July 18, 2022.
General view as Kaja Kallas, Prime Minister of the new Estonian government, addresses an extraordinary parliamentary session in Tallinn, Estonia July 18, 2022. Reuters / INTS KALNINS

The new cabinet of Estonian Prime Minister Kaja Kallas was sworn in on Monday, re-establishing political stability, but she warned of tough times ahead for the economy as energy costs soar and inflation rages in the fall-out from the war in Ukraine.

Estonia, a Baltic republic of 1.3 million set to host an increase in NATO troops to ward off possible threats from neighbour Russia, had been under a minority government since June 7 when Kallas cut ties with her junior coalition partner.

On July 8 Kallas announced a new three-party coalition of her liberal Reform Party, conservative Isamaa and centre-left Social Democrats to command 55 of 101 seats in parliament, which last week voted to reappoint her as premier.

"It's going to be a very hard autumn, a very hard winter, and the elections are going to be after that. So it is of course (a feast) for all the (opposition) populists," she told Reuters in an interview before taking the oath of office on Monday.

"But there are no easy solutions, these are hard times."

The next election is scheduled for March 2023.

Estonia, along with fellow Baltic states Latvia and Estonia, all members of NATO and the European Union, stopped importing Russian gas in May over Russia's invasion of Ukraine, which the three say warrant the toughest possible EU sanctions on Moscow.

To cushion the blow from the loss of Russian gas, Estonia is now developing a liquefied natural gas (LNG) terminal to secure gas supplies from non-Russian suppliers during winter.

The Reform Party has enjoyed a surge of popularity since Russia's invasion to 34%, according to a Norstat poll, even as annual inflation soared to 22% in June, the highest in the EU.

The opposition far-right EKRE party had the second-highest support at 21 percent.

"Inflation of course is very hard to deal with," Kallas said. "We try to focus on helping people to cope, and to not let inflation rise more. And this is a very difficult task, as the economy will be slower than it was before."