Zanzibar's economy in 2025 has demonstrated robust resilience and growth, contributing significantly to Tanzania's overall economic development. As a semi-autonomous region within the United Republic of Tanzania, Zanzibar accounts for approximately 3-4% of the national GDP but plays a pivotal role in foreign exchange earnings through tourism and agriculture. According to the Bank of Tanzania's (BoT) Monthly Economic Review for November 2025, Zanzibar's GDP grew by 6.4% in the first quarter of 2025 (matching the previous year), with projections for full-year growth reaching 7.3%, driven by tourism, construction, and agriculture. This outperforms the mainland's 5.4% Q1 growth and aligns with Tanzania's national target of over 6% GDP expansion. Key enablers include stable inflation, fiscal discipline, and a surging external sector, bolstered by global tourism recovery and domestic reforms. However, challenges like cyclical commodity declines (e.g., cloves) and import pressures highlight the need for diversification. Below, we expand on the provided outline with detailed data from the BoT report, supplemented by contextual insights from recent analyses (e.g., IMF and World Bank projections for Tanzania-Zanzibar integration). Read More: Zanzibar Economy Strengthens

1. Inflation Developments

Zanzibar experienced significant easing of inflation in 2025, aligning with the Bank of Tanzania's 3-5% target and regional benchmarks under the East African Community (EAC) and Southern African Development Community (SADC). This stability supports household purchasing power, consumer spending, and broader economic confidence, contributing to Tanzania's anchored national inflation at 3.5% in October 2025. The decline reflects prudent monetary policy transmission from the mainland, adequate food supplies via inter-regional trade, and falling global energy prices, which reduced imported inflation.

1.1 Headline Inflation

Headline inflation moderated steadily through 2025, falling from 5.8% in October 2024 to 3.4% in October 2025—a cumulative easing of 41% year-over-year. Monthly inflation remained subdued at 0.1% in October 2025, unchanged from the prior year, indicating low near-term pressures.

Main drivers of the decline:

• Slowdown in food inflation: Eased to 6.4% in October 2025 from 8.2% in October 2024. This was supported by bumper harvests in staple crops (e.g., maize and rice imports from mainland Tanzania) and stable supply chains, mitigating weather risks. Food's high weight (41.9% in the CPI basket) makes this a key anchor; unprocessed food prices fell 1.6% month-on-month in October 2025.
• Drop in non-food inflation due to falling fuel prices: Plummeted to 1.0% from 4.1% in October 2024. Key factors include a 20-25% reduction in domestic petroleum prices (petrol at TZS 3,200/liter, diesel at TZS 3,400/liter by late 2025), driven by global crude oil averaging USD 70/barrel amid U.S. supply surges. This lowered transport and utilities costs, with housing/electricity/gas inflation turning negative at -3.3%.
• Additional context: Projections from BoT's October 2025 Monetary Policy Report indicate inflation will stay below 5% through year-end, aided by exchange rate stability (TZS/USD at ~2,700) and fiscal-monetary coordination. Compared to mainland Tanzania's 3.5% headline, Zanzibar's slightly higher rate reflects its import dependency, but both remain within EAC/SADC convergence (under 8%).

1.2 Inflation Table

The table below details year-on-year (YoY) and month-on-month changes, based on the July 2022=100 CPI basket. Food remains volatile but downward-trending, while energy-related categories (e.g., housing, transport) show sharp disinflation.

Source: Office of the Chief Government Statistician (Zanzibar), BoT computations. Insights: Negative monthly shifts in housing (-1.0%) and recreation (-0.5%) underscore energy and seasonal demand relief. YoY food inflation's persistence (7.1%) ties to Zanzibar's import reliance (70% of staples from mainland), but overall trends support 2025's low-risk outlook per IMF's 2025 Article IV consultation.

Chart Description (Annual Inflation Rates): A line chart tracks headline (blue, declining to 3.4%), food (red, easing to 6.4%), and non-food (green, dropping to 1.0%) from Oct 2024 to Oct 2025, highlighting the post-July 2025 disinflation phase amid harvest peaks.

2. Government Budgetary Operations (Zanzibar)

Zanzibar's fiscal operations in 2025 emphasize growth-oriented spending, with a Sh6.98 trillion annual budget (up 34.7% YoY) targeting infrastructure and social sectors. October 2025 data shows a deficit but strong domestic mobilization, reducing aid dependency and aligning with Tanzania's national fiscal consolidation (deficit at 3.5% of GDP). This supports Vision 2050 goals by channeling 65% of the budget to development, up from 24% five years ago.

2.1 Revenue Performance – October 2025

Total resources reached 84.8% of target, driven by tax buoyancy from tourism levies and trade. Non-tax underperformance reflects seasonal delays in fees/dividends.

Key insight: Tax collection is strong and remains the backbone of Zanzibar’s revenue (89% share), fueled by VAT/excise (TZS 44.7B), income tax (TZS 44.7B), and import duties (TZS 25.9B). Non-tax lags due to delayed port/airport fees. Annual domestic revenue has surged 278% over five years to Sh2.9T, per President Mwinyi's October 2025 remarks, enabling self-financed operations.

Chart Description (Chart 3.2.1: Government Resources): Bar chart compares 2024-2025 actuals: Tax on imports (25.9B), VAT/excise (44.7B), income tax (44.7B), other taxes (31.4B), non-tax (13.9B), grants (28.3B)—showing tax dominance.

2.2 Government Expenditure – October 2025

Expenditure prioritized development (52% share), financing key projects like education reforms (Sh864B allocation for 2025/26) and tourism infrastructure.

• % financed domestically: 83.6% (strong local borrowing/mobilization).
• Overall Fiscal Balance: –91.7 billion (deficit), fully financed via domestic borrowing (e.g., T-bills).

Interpretation:

• Development spending outpaced recurrent expenditure: Reflects strategic shift to capital projects (e.g., roads, energy), boosting productivity and aligning with Tanzania's 7% growth target.
• Heavy reliance on domestic financing: Indicates fiscal maturity, reducing external vulnerability; debt-to-GDP stable at ~40% per World Bank 2025 estimates.
• Broader context: Annual budget execution at 85% YTD, with education/health at 21.5% allocation, supporting human capital for tourism-led growth.

Chart Description (Government Expenditure): Stacked bars for 2024-2025: Wages/salaries (64.3B), other recurrent (99.1B), development (92.6B)—highlighting development surge.

3. External Sector Performance – Zanzibar

Zanzibar continues to record a strong current account surplus, bolstering Tanzania's national reserves (up 14.1% YoY to USD 15.7B). The surplus widened amid tourism boom, offsetting mainland deficits and funding imports/investments.

3.1 Current Account Balance

The surplus expanded 42.8%, driven by services (36.6% growth), with tourism contributing 80% of receipts.

Why the surplus increased:

• Higher tourism earnings: Service receipts up 34.3% to USD 1,531.9M, with average stay/spend rising 15-20% (USD 1,200/visitor).
• Rising exports of goods & services: 30.4% growth, led by services.
• Strong growth in tourist arrivals: +27.9% to 902,265 (September 2025 alone: +38.6% to 84,154).
• Moderate import growth (17%) vs. export growth (30.4%), narrowing goods deficit 25.9%.

4. Exports Performance (Zanzibar)

Exports surged, with tourism overtaking goods as the top earner (55% of services exports).

4.1 Total Exports of Goods & Services

Annual: +30.4% to USD 1,564.3M.

4.2 Tourism Performance

Tourism generated USD 3.92B nationally (year ending May 2025), with Zanzibar capturing ~30% of GDP contribution.

Tourism remains the dominant foreign exchange earner: Europeans (60% arrivals) and domestic travel up 20%; receipts USD 1.27B (year ending Aug 2025, +30.6%).

4.3 Clove Exports (Zanzibar’s Main Commodity)

Reason: Cyclical production decline (low harvest cycle); annual exports down 45.4% to USD 32.3M total goods, but offset by non-traditionals like spices/souvenirs.

5. Imports Performance

Imports increased moderately, reflecting investment needs but contained by surplus.

5.1 Imports of Goods & Services

Annual: +17.0% to USD 656.4M.

Drivers:

• Capital goods (+49.8% to USD 76.4M): Machinery/appliances for tourism infra (e.g., hotels).
• Consumer goods: Non-industrial transport (vehicles for services sector).
• Intermediate goods (fuel, machinery): Industrial supplies up 15%, tied to construction boom.

6. Summary Table – Zanzibar Economic Indicators (2025)

Overall Outlook: Zanzibar's 2025 performance enhances Tanzania's inclusive growth, per World Bank's FY2025-2029 CPF, by boosting FX (24% of national exports) and employment (1 in 5 jobs tourism-linked). Risks include commodity volatility, but 7.3% GDP projection signals sustained momentum.