People take part in a demonstration on July 21, 2011, in Tunis against violence and religious extremism, and calling to uphold the elections planned for next Oct. 23.FETHI BELAID
Tunisia's Jasmine revolution may have inspired millions of Arabs to take to the streets, but the economic cost of the revolt -- and the mess of graft and fiscal irregularities left behind by the former regime -- is only starting to become apparent to the country's policymakers.
Officials estimate that the economy contracted 3.3 per cent year-on-year in the first quarter, when the country was wracked by street protests. These eventually forced former president Zein al-Abidine Ben Ali to flee but threw much of the country's commerce into a tailspin.
While Tunisia has been able stave off an "economic collapse", Mustapha Nabli, Tunisia's central bank governor, concedes that the first three months were "pretty bad".
The central bank now hopes the economy will eke out an overall growth rate of 1 per cent this year, after 3.7 per cent last year, and an average growth rate of 4.4 per cent in 2000-05, according to the International Monetary Fund. Yet it promises to be a tough year.
One of the main drags on growth is Tunisia's tourism sector, which is a vital driver of employment and source of foreign currency. The industry's revenues have contracted by as much as 50 per cent as a result of the absence of mostly European holidaymakers this year, and thousands have lost their jobs
In addition, the continuing strife in neighbouring Libya -- ironically partially inspired by Tunisia's revolution -- is also having a debilitating effect. Many of the non-European visitors to Tunisia's resorts were Libyan, and tens of thousands of Tunisians working in Libya, who sent money back home, have had to return.
"The Libyan crisis has strained Tunisia's ability to support the inflow of refugees while at the same time cutting Tunisia from a traditional strong source of revenues," says Philippe Dauba-Pantanacce, an economist at Standard Chartered.
Mr. Nabli estimates that Tunisia's economy normally gains up to $2.5-billion a year -- about 5 per cent of gross domestic product -- from remittances, trade, investment and medical tourism from its wealthier neighbour. Two-thirds of that has evaporated, according to the central bank, and the costs of taking care of refugees -- both returning Tunisians and fleeing Libyans -- is an additional fiscal drain.
"It's a huge sum," Mr. Nabli says. "We need tourism to recover and Libya to settle down. Its turmoil has been very painful to us."
While Mr. Ben Ali and his family have fled Tunisia, the tangled Web of company ownership, property developments and financial loans from state-controlled banks that they left behind are being slowly unravelled.
The central bank estimates that 6-7 per cent of all banking loans in Tunisia were made to companies controlled by Mr. Ben Ali's extended family and cronies, and Mr. Nabli says some lenders may need recapitalization.
There are notable bright spots in the economy. The central bank's foreign currency reserves have fallen by TD 3 billion ($2.2-billion) to TD 10 billion, but the authorities have managed to keep the currency steady and the depletion has now largely stopped, Mr. Nabli says.
The central bank governor also expects multinational entities such as the World Bank and the African Development Bank to step in with a package to meet Tunisia's $1.4-billionn financing needs this year - partially to meet a 5 per cent budget deficit. More money is likely to arrive to buttress the country's move towards democracy.
Moreover, Tunisia's manufacturing sector has roared back to life and the overall export of goods grew 14.2 per cent in the year to May.
Economists also stress that, of all the north African countries, Tunisia may have the best medium-term growth prospects thanks to a large and well-educated middle-class, diversified economy and relatively advanced manufacturing sector.
However, the short-term picture is murkier. The growing size of the work force, coupled with weak economy, means that unemployment - one of the main complaints that eventually led to Mr Ben Ali's ousting - is only likely to get worse.
"It's all about job creation now - but that's not going to happen overnight," says Ann Wyman, head of emerging market research at Nomura.
An economic recovery would improve the prospects for a smooth political transition from autocracy to democracy. The paradox is that an improvement on the political front may well be necessary for a robust and durable economic recovery.
"Things are moving in the right direction and Tunisia certainly has the right long-term building blocks, but no one should look at the situation through rose-tinted glasses," Ms Wyman warns.