Tunis: Tunisia's Jasmine revolution may have inspired millions of Arabs to take to the streets, but the economic cost of the uprising — 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 protests raged across the country. These eventually forced then president Zein Al Abidine Bin Ali to flee but threw much of Tunisia's commerce into a tailspin.

While the country has been able stave off an "economic collapse", Mustafa Nabli, Tunisia's central bank governor, concedes that the first three months were "pretty bad".

The central bank 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, 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

Libya drag

In addition, the continuing strife in neighbouring Libya — ironically partially inspired by Tunisia's revolution — is also having a debilitating effect.

Many 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.

Nabli estimates that Tunisia's economy normally gains up to $2.5 billion (Dh9.18 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. The central bank estimates that 6 to 7 per cent of all banking loans in Tunisia were made to companies controlled by Bin Ali's extended family and cronies, and Nabli says some lenders may need recapitalisation.

Bright spots

There are notable bright spots. The central bank's foreign currency reserves have fallen by 3 billion Tunisian dollars (Dh8 billion) to T$10 billion, but the authorities have managed to keep the currency steady and the depletion has now largely stopped, 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 billion financing needs this year — partially to meet a 5 per cent budget deficit.

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 feel Tunisia may have the best medium-term growth prospects among north African countries, thanks to a large and well-educated middle class, its diversified economy and a relatively advanced manufacturing sector.

However, the short-term picture is murkier. The growing size of the workforce coupled with weak economy means that unemployment — one of the main complaints that eventually led to Bin 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.

— Financial Times