Inflation Eases to 3.5%, Current Account Surplus Up 34.7% (September 2025)

Zanzibar’s economic performance in September 2025 reflects solid recovery momentum supported by easing inflation (down to 3.5% from 3.9%), strong revenue mobilization, and an expanded current account surplus rising to USD 836.6 million (+34.7%). The external sector continued to benefit from robust tourism activity, with travel receipts jumping by 36.4% amid increased arrivals (+28.2%). Development expenditure dominated the TZS 420.1 billion budget (60%), signaling strategic investment in infrastructure and social services, while strong domestic financing (78.4% coverage) reinforced fiscal sustainability. Exports grew significantly to USD 1,473.9 million (+27.3%), driven overwhelmingly by services, despite a sharp 76% fall in clove exports due to seasonal cycles. Imports also rose moderately (+18.9%) to USD 658.4 million, largely reflecting higher capital goods inflows (+84.7%), indicating continued investment activity. Overall, Zanzibar’s growth remains anchored in tourism, supported by stable price trends, improved fiscal discipline, and strong external sector performance—though diversification remains essential to reduce vulnerability to single-sector shocks.

1. Overview of Zanzibar Economic Performance

Zanzibar’s economy showed moderate improvement supported mainly by:

• A decline in inflation
• Stronger revenue performance
• Improved external sector (current account surplus)

2. Inflation Performance in Zanzibar

Headline Inflation (Year ending September 2025)

Source: Inflation table under Zanzibar section

Notes

• Inflation pressures eased mainly due to improved supply conditions.
• Declines were broad-based across categories such as:
  • Restaurant and Accommodation services
  • Transport
  • Education
  • Personal care and miscellaneous services

3. Government Budgetary Operations (Zanzibar)

Expenditure — September 2025

Source: Government operations chart and narrative

Interpretation

• Development spending dominates, indicating capital-focused fiscal policy.
• High reliance on domestic resources strengthens fiscal sustainability.

4. Zanzibar External Sector Performance

Key Indicators

Drivers of Improvement

Higher tourism receipts (+36.4%)
Increased arrivals (885,385 visitors, +28.2%)
Stronger exports of services

5. Detailed Breakdown — Zanzibar Exports

Exports of Goods and Services (Year ending September 2025)

* previous value referenced from narrative (crop cycle impact)

Tourism was the standout performer.

6. Imports Breakdown — Zanzibar

Imports of Goods and Services

7. Summary Table — Zanzibar Economic Indicators

Implications of Zanzibar's Economic Performance in September 2025

Zanzibar's economic indicators for September 2025, as outlined in Section 3.0 (Economic Performance in Zanzibar) of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), depict a resilient semi-autonomous economy buoyed by tourism recovery and fiscal discipline. Headline inflation eased to 3.5% (from 3.9% in 2024), budgetary operations showed strong development focus (TZS 250.1 billion, 60% of total TZS 420.1 billion expenditure), and the external sector expanded with a USD 836.6 million current account (CA) surplus (+34.7% y/y), driven by travel receipts (USD 1,503.9 million, +36.4%). This performance mirrors mainland trends—6.3% Q2 GDP growth, 3.4% inflation—but highlights Zanzibar's tourism dependence amid clove export declines (-76%). Below, I analyze implications across core areas, drawing synergies with national dynamics like shilling appreciation (+9.4% y/y) and accommodative policy (CBR 5.75%).

1. Inflation Developments: Broad-Based Easing Supports Household Stability

• Headline at 3.5% (Down from 3.9%; Food 4.1%, Non-Food 2.9%): The decline reflects improved supply chains (e.g., domestic agriculture aiding food moderation) and global commodity relief (oil down), with broad easing in services like restaurants/accommodation (tourism-linked), transport, education, and personal care. This aligns with mainland's 3.4% stability, within shared 3–5% target and EAC/SADC criteria.
• Broader Implications:
  • Positive: Lowers living costs, boosting disposable income for tourism-dependent households and sustaining arrivals (885,385 visitors, +28.2%). Enhances real returns on savings amid positive deposit rates (~6.4% real; prior analysis), supporting consumption-led growth.
  • Risks: Food's relative stickiness (4.1%) exposes to supply shocks (e.g., mainland rice/maize pressures), potentially spilling via inter-island trade. Non-food drop (2.9%) ties to import affordability from shilling strength, but global rebounds could reverse gains.

2. Government Budgetary Operations: Development-Led Fiscal Expansion

• Total Expenditure TZS 420.1B (Recurrent TZS 170B/40%, Development TZS 250.1B/60%): Strong domestic revenue/grants (TZS 240.2B) covered 78.4% financing, yielding a TZS 180B deficit via local borrowing (e.g., securities). Emphasis on capital outlays prioritizes infrastructure/tourism enhancements, echoing mainland's 71.9% execution.
• Broader Implications:
  • Positive: Capital bias (~60%) fosters long-term multipliers (e.g., transport/energy for visitor access), aligning with CA surplus drivers. Domestic-heavy financing reduces FX risks (vs. mainland's 70.6% external debt), enhancing sustainability amid low yields (T-bills 6.03%).
  • Risks: Deficit reliance on borrowing could pressure local rates if mainland liquidity tightens (IBCM +37.4% but short-tenor heavy). Execution delays (common nationally) might hinder tourism infra, amplifying clove-like sectoral slumps.

3. External Sector Performance: Tourism-Fueled Surplus Amid Import Pressures

• CA Surplus USD 836.6M (+34.7% from USD 621.2M); Exports USD 1,473.9M (+27.3%), Imports USD 658.4M (+18.9%): Tourism dominated (USD 1,503.9M receipts, +36.4%; arrivals +28.2%), offsetting clove drops (USD 6.3M, -76% due to crop cycles). Imports rose moderately, led by capital goods (+84.7%, USD 73.6M for non-industrial equipment) and consumer items, signaling investment.
• Broader Implications:
  • Positive: Surplus buffers reserves (national 5.8 months cover), supporting shilling stability and import cost relief (energy inflation 3.7%). Tourism synergy with mainland exports (e.g., gold/cereals) diversifies inflows, aiding 6% national growth projection.
  • Risks: Clove decline underscores commodity vulnerability (mirroring mainland food stocks buildup), while import growth (if unchecked) could erode surplus if tourism falters (e.g., global protectionism). Heavy service reliance (travel ~102% of exports) exposes to shocks like pandemics or geopolitics.

4. Interlinkages: Tourism as Growth Anchor with National Spillovers

• Synergies with Mainland: Zanzibar's inflation easing (3.5%) complements national 3.4%, via shared supply chains (e.g., NFRA aiding food) and monetary policy (interbank 6.45%; Section 2.5). Tourism inflows bolster FX (BOT USD 11M intervention), while development spend ties to national infra (e.g., energy for reliable power).
• Fiscal-External Ties: Surplus finances deficit sustainably, reducing debt reliance (national 40.1% GDP) and supporting private credit (16.1% y/y).
• Broader Implications:
  • Positive: Positions Zanzibar as a national growth pole (tourism +28.2% arrivals vs. mainland mining/agri), enhancing EAC integration (convergence met).
  • Risks: Over-dependence on tourism/cloves amplifies external shocks (e.g., oil volatility), potentially widening inter-regional disparities if mainland exports soften.

5. Macroeconomic Context from the Review

• Alignment: Mirrors resilient outlook (IMF 3.2% global growth), with tourism offsetting clove dips like mainland's mixed commodities. Projections: Stable inflation (3–5%), sustained surplus via services.
• Outlook: Favorable for 2026 if diversification advances (e.g., via capital imports), but monitor global demand.

In conclusion, September 2025's data imply a tourism-propelled Zanzibar economy with stabilizing prices and external strength, complementing national momentum for balanced union growth. While development spending and surplus signal sustainability, mitigating tourism/clove risks through diversification is vital for enduring resilience amid global headwinds.