In October 2024, Zanzibar's economy demonstrated resilience, showing strong fiscal performance, improved external trade, and effective management of inflationary pressures. While inflation rose moderately, the government exceeded revenue targets, and external sector performance strengthened with an increasing current account surplus and robust exports. Despite some challenges, Zanzibar's economy remains on a positive trajectory, with strategic fiscal management and growing export potential.

1. Inflation Analysis

In October 2024, Zanzibar's inflation showed an upward trend in comparison to the previous month but remained lower than the same period in 2023.

• Headline Inflation:
  • 5.8% (up from 4.8% in September 2024)
  • Lower than 6.5% in October 2023.
• Inflation Components:
  • Non-food Inflation:
    • 4.1% (up from 2.8% in September).
    • The increase is mainly driven by rising kerosene and petrol prices.
  • Food Inflation:
    • 8.2% (up from 7.3% in September).
    • Key contributors:
      • Fish: Rising demand and supply constraints.
      • Jasmine Rice: Price increases linked to global supply and domestic production challenges.
      • Edible Cooking Oil: Price hikes caused by supply chain disruptions.
  • Month-to-Month Inflation:
    • 0.1% (compared to -0.9% in October 2023), indicating slight price increases in the short term.

2. Government Budgetary Operations

The government’s budget performance in October 2024 reflected strong revenue generation, but also substantial expenditure.

• Total Revenue and Grants:
  • TZS 158.3 billion (domestic revenue: TZS 143.2 billion, exceeding the target by 1.9%).
• Tax Revenue:
  • Total Tax Revenue:
    • TZS 129.3 billion (exceeded target by 4.8%).
  • Key Components:
    • Tax on Imports: TZS 25.9 billion.
    • VAT and Excise Duties: TZS 44.7 billion.
    • Income Tax: TZS 27.4 billion.
    • Other Taxes: TZS 31.4 billion.
• Non-Tax Revenue:
  • TZS 13.9 billion (81.3% of the target).
• Government Expenditure:
  • Total Expenditure: TZS 283.1 billion.
    • Recurrent Expenditure: TZS 163.5 billion.
    • Development Expenditure: TZS 119.6 billion.
      • Local Financing: TZS 68.1 billion.
      • Foreign Resources: The remaining balance.

3. External Sector Performance

Zanzibar’s external sector exhibited a positive trend, with an increase in the current account surplus and stronger export performance.

• Current Account:
  • The current account remained in surplus.
  • It increased to USD 520.4 million (up from USD 335.8 million), showing stronger economic health.
• Exports:
  • Total Goods and Services:
    • USD 1,077.3 million (up from USD 972.1 million), driven by various sectors, particularly tourism.
  • Cloves Exports:
    • USD 22.1 million (declined by 18.6% due to cyclical nature of production).
  • Monthly Exports (October 2024):
    • USD 110.1 million (up from USD 84.4 million).
• Imports:
  • Total Imports:
    • Declined by 11.3% to USD 575.4 million.
  • Capital Goods:
    • Decreased to USD 51 million (from USD 79.6 million), possibly due to reduced infrastructure and machinery purchases.
  • Monthly Imports (October 2024):
    • USD 70.6 million.

4. Key Economic Indicators

• Revenue Performance: Strong revenue generation, particularly from taxes.
• Expenditure Management: The government efficiently managed its recurrent and development expenditures.
• External Sector Performance: Improving trade balance with a positive current account surplus and increasing exports.
• Inflation Pressures: Moderate inflation driven by food and fuel prices, manageable within the overall context.
• Fiscal Balance: Zanzibar has balanced fiscal operations with strong revenue and controlled expenditures.

Overall Economic Performance

• Fiscal Management:
  Improved fiscal management, with the government meeting and exceeding its revenue targets and allocating strategic resources.
• External Position:
  Strong external sector performance, with a positive current account surplus and improving export performance. However, imports have declined, particularly in capital goods.
• Inflation Management:
  Inflation remains at a manageable level, with moderate pressures mainly from food prices and energy costs.
• Revenue and Expenditure:
  Effective revenue collection and strategic expenditure allocation, supporting both recurrent and development needs.
• Tourism and Export Growth:
  The tourism sector continues to be a major contributor, with export growth in goods and services.
• Declining Import Dependency:
  The decline in imports, especially capital goods, suggests a shift towards local production or more efficient use of foreign resources.

In summary, Zanzibar's economy shows resilience with improving fiscal and external sector performance, despite facing some inflationary pressures. The strong performance in revenue collection and controlled expenditure management indicates a solid foundation for continued economic growth.

Zanzibar's economic performance in October 2024 with key insights:

1. Moderate Inflation Pressures:
   Inflation has risen, but the overall increase is moderate (5.8% in October 2024 compared to 4.8% in September). The rise in food inflation, driven by increased prices of fish, rice, and cooking oil, and the rise in non-food inflation due to higher kerosene and petrol prices, indicate inflationary pressures. However, the month-to-month inflation rate is positive at 0.1%, suggesting that the inflation increase is gradual and not an immediate crisis.
2. Strong Revenue Performance:
   Zanzibar has exceeded its revenue targets, with tax revenue surpassing expectations by 4.8%. Key contributors to this performance include taxes on imports, VAT and excise duties, and income taxes. This indicates a robust tax collection system and strong economic activity, which is helping to support the government’s fiscal health.
3. Effective Expenditure Management:
   Despite the strong revenue performance, the government has managed its expenditures well. The government’s total expenditure is substantial at TZS 283.1 billion, but it is well-managed, with clear allocations for recurrent spending and development projects. Local financing of development expenditure is notably high, suggesting efforts to support projects without overly relying on foreign loans.
4. Improving External Sector:
   Zanzibar's external sector has improved, with the current account surplus increasing significantly (from USD 335.8 million to USD 520.4 million). The growth in exports, particularly in goods and services (from USD 972.1 million to USD 1,077.3 million), shows that Zanzibar is improving its trade balance and increasing its foreign earnings. The decline in imports, particularly in capital goods, could suggest a reduction in dependency on foreign goods, which is a positive sign of local production capacity or shifting priorities.
5. Resilient Economic Position:
   Overall, Zanzibar’s economy demonstrates resilience. Despite inflationary pressures, it is maintaining strong fiscal performance, with effective revenue collection, strategic expenditure allocation, and a positive external position. The tourism sector continues to be a strong driver of exports, contributing to overall economic growth.
6. Declining Import Dependency:
   A decrease in imports, especially capital goods, might indicate a move toward local production or more efficient utilization of foreign resources, which would reduce dependency on foreign imports in the long term.

Key Takeaways:

• Zanzibar's economy is on a positive trajectory with improving fiscal health, growing external reserves, and effective management of inflation.
• The revenue performance is strong, and the government's expenditure is well-targeted, with an emphasis on sustainable development and local financing.
• External trade is improving, with a stronger export performance and a current account surplus, though the import decline indicates a shift toward reducing dependency on foreign goods.
• Inflation, although moderate, poses some risks, primarily from food and fuel prices, which will need to be managed carefully.

Overall, Zanzibar's economy is stable and growing, with effective fiscal policies and an improving external sector, though managing inflation and ensuring sustainable import-export balances will be key to continued prosperity.