Comprehensive Analysis of Growth, Tourism Recovery, Trade, and Fiscal Developments
Zanzibar, as a semi-autonomous region of Tanzania, plays a pivotal role in the nation's economic landscape. The region demonstrated remarkable economic resilience in 2025, achieving 6.8% GDP growth driven primarily by tourism-led services, trade, transport, and agriculture.
Tourism continues as the backbone of Zanzibar's economy, accounting for approximately 30% of GDP. The sector's recovery exceeded expectations with 917,167 tourist arrivals in 2025. This analysis examines seven critical dimensions: overall economic activity, inflation developments, tourism performance, external trade, financial conditions, fiscal developments, and economic outlook.
Zanzibar's economy continued to demonstrate robust improvement in 2025, building on the strong foundation of 7.1% GDP growth achieved in 2024. The economy maintained positive momentum with an estimated 6.8% GDP growth in 2025, driven by several key sectors that collectively contributed to this impressive performance.
The main growth drivers included tourism-led services, which remained the dominant contributor to economic expansion, alongside substantial growth in trade, transport, construction, and agricultural activities. The private sector exhibited strong activity, supported by improved credit availability and favorable monetary conditions that facilitated business expansion and investment.
| Indicator | Performance |
|---|---|
| Overall Economic Activity | Improved, robust momentum |
| Main Growth Drivers | Tourism, trade, transport, services, construction |
| Economic Momentum | Positive, with 6.8% GDP growth in 2025 |
| Private Sector Activity | Expanding, supported by credit growth |
Zanzibar benefited from strong services-sector performance, particularly tourism, which accounts for approximately 30% of GDP and serves as the primary driver of foreign exchange earnings. The diversification of growth drivers beyond tourism, including construction and transport, indicates a maturing economy with reduced dependency on a single sector. The expanding private sector activity, supported by a 23.5% growth in credit to the private sector aligned with mainland trends, demonstrates improved business confidence and investment climate.
Inflation in Zanzibar remained low and stable throughout 2025, bolstering household purchasing power and supporting business confidence across the region. The annual headline inflation rate eased to 3.8% in December 2025, down from 4.9% in December 2024, demonstrating effective monetary policy management and favorable supply conditions.
The inflation performance remained well within the national target range, with food prices serving as the primary source of inflationary pressure. However, even food inflation showed signs of moderation, easing from higher levels earlier in the year due to falling costs of staple commodities including rice, sugar, and wheat flour. Non-food inflation remained particularly subdued at 2.5%, reflecting stable costs in housing, utilities, transport, and other services.
| Inflation Measure | Rate (%) |
|---|---|
| Headline Inflation | 3.8% |
| Food Inflation | 5.4% |
| Non-Food Inflation | 2.5% |
| Inflation Trend | Stable, downward trajectory |
Inflation stayed within the national target range, with food prices as the main pressure point, though these pressures were eased by falling costs of essential staples such as rice, sugar, and wheat flour. The stable inflation environment supports both consumer purchasing power and business planning, creating favorable conditions for sustained economic growth. The divergence between food inflation (5.4%) and non-food inflation (2.5%) reflects global agricultural commodity price dynamics and local supply factors, while the overall downward trajectory in headline inflation demonstrates effective policy coordination between monetary and fiscal authorities.
Tourism remains the backbone of Zanzibar's economy, supporting foreign exchange earnings, employment generation, and a wide range of service sector activities. The sector demonstrated remarkable recovery and growth in 2025, with tourist arrivals increasing significantly throughout the year.
Total tourist arrivals reached 917,167 visitors in the year ending December 2025, representing substantial growth compared to previous years. October 2025 alone recorded 86,740 visitors, marking a 24.2% year-on-year increase and demonstrating the strong momentum in tourism recovery. The sector's performance was bolstered by improved global travel conditions, enhanced marketing efforts, and Zanzibar's reputation as a premier tropical destination.
Hotel occupancy rates remained high throughout the year, reflecting strong demand across various accommodation categories from luxury resorts to boutique hotels. Tourism receipts continued to rise, with services exports reaching USD 1,509.1 million, predominantly driven by tourism-related activities. This robust performance contributed approximately 30% to Zanzibar's GDP, cementing tourism's position as the primary economic engine.
| Indicator | Status |
|---|---|
| Tourist Arrivals | Increased to 917,167 (year ending Dec 2025) |
| Hotel Occupancy | High |
| Tourism Receipts | Rising, USD 1,509.1 million in services |
| Contribution to Growth | Significant, ~30% of GDP |
Tourism recovery was a major driver of economic growth and external earnings for Zanzibar in 2025. However, while the sector's performance has been exceptional, diversification remains necessary to mitigate global risks such as economic downturns in source markets, geopolitical uncertainties, and climate-related disruptions. The concentration of approximately 30% of GDP in tourism, while beneficial during growth periods, creates vulnerability to external shocks. Strategic initiatives to develop complementary sectors such as sustainable agriculture, fisheries, manufacturing, and digital services could enhance economic resilience while maintaining tourism's central role in the economy.
Zanzibar's external sector demonstrated remarkable strength in 2025, with the current account surplus expanding by 34% to reach USD 943.3 million in the year ending December 2025. This significant improvement reflects the robust performance of the services sector, particularly tourism, which continues to drive foreign exchange earnings for the region.
Services exports performed exceptionally well, reaching USD 1,409.9 million, representing a 25.2% increase year-on-year. This growth was predominantly tourism-led, with visitor spending contributing substantially to foreign exchange inflows. The strong services performance effectively offset moderate goods import growth of 14.8%, which totaled USD 567.2 million, demonstrating the economy's ability to maintain external balance despite rising import demand driven by economic expansion.
The improved external position has bolstered Zanzibar's foreign exchange reserves and enhanced overall economic stability. The substantial current account surplus provides a cushion against external shocks and supports the government's ability to meet foreign currency obligations while maintaining confidence in the region's economic management.
| Component | Performance |
|---|---|
| Services Exports | Strong (USD 1,409.9 million, tourism-led, +25.2%) |
| Goods Imports | Moderate growth (USD 567.2 million, +14.8%) |
| External Balance | Improving, surplus USD 943.3 million (+34%) |
| FX Inflows | Increased significantly |
Strong tourism receipts offset import demand, bolstering reserves and stability. The widening current account surplus demonstrates Zanzibar's improved external resilience and its capacity to generate foreign exchange through services exports. However, the economy remains significantly dependent on tourism-related foreign exchange earnings, highlighting the importance of diversification strategies to mitigate potential vulnerabilities from global tourism market fluctuations.
Financial and monetary conditions in Zanzibar remained favorable throughout 2025, providing crucial support for economic growth and private sector development. Liquidity conditions were adequate, with stable interest rates creating an enabling environment for private sector financing and investment activities.
Credit to the private sector expanded robustly, aligning with national trends where mainland Tanzania recorded 23.5% growth in private sector credit. This credit expansion facilitated business growth, investment in productive activities, and supported the overall economic momentum observed across various sectors. The increased availability of credit has been particularly important for tourism-related businesses, trade enterprises, and construction activities.
Financial stability remained sound throughout the period, aided by accommodative monetary policy from the Bank of Tanzania. The stable interest rate environment, combined with adequate liquidity, created favorable conditions for businesses to access financing for expansion and working capital needs. However, broader and more inclusive credit access could further enhance economic diversification efforts and support the development of non-tourism sectors.
| Indicator | Status |
|---|---|
| Credit to Private Sector | Expanding (aligned with 23.5% mainland growth) |
| Liquidity Conditions | Adequate |
| Interest Rate Environment | Stable and supportive |
| Financial Stability | Sound and resilient |
Favorable monetary and financial conditions supported economic growth and private sector expansion in 2025. The stable interest rate environment and adequate liquidity facilitated business financing and investment. However, broader credit access, particularly to small and medium enterprises in non-tourism sectors, could enhance economic diversification efforts. Continued financial sector development, including improved access to credit for agriculture, fisheries, and manufacturing, would support Zanzibar's long-term economic resilience and reduce dependency on tourism.
Fiscal performance in Zanzibar showed significant improvement in 2025, reflecting the positive impact of enhanced economic activity on government revenues. Revenue collection in December 2025 reached TZS 229.3 billion, exceeding the target by 2.2% and demonstrating improved revenue mobilization capacity. Domestic revenue collection totaled TZS 207.4 billion, with tax revenue contributing 90.2% of domestic revenues, indicating strong tax administration and compliance.
Government expenditure remained on track, totaling TZS 428.1 billion, with a balanced allocation between recurrent and development spending. Development expenditure reached TZS 244.7 billion, with 65.9% financed domestically, demonstrating the government's commitment to reducing aid dependency and building fiscal self-reliance. This shift toward domestic financing of development projects enhances policy autonomy and reduces vulnerability to external financing conditions.
The budget deficit was managed through a combination of domestic and external financing, maintaining fiscal sustainability while supporting critical infrastructure and service delivery. The improved revenue performance, driven by enhanced economic activity, particularly in tourism and trade, has enabled the government to maintain essential services and invest in infrastructure without compromising fiscal stability.
| Indicator | Performance |
|---|---|
| Revenue Collection | Improved (TZS 229.3 billion, 2.2% above target) |
| Domestic Revenue | TZS 207.4 billion (Tax: 90.2% of domestic) |
| Total Expenditure | On track (TZS 428.1 billion) |
| Development Spending | TZS 244.7 billion (65.9% domestically financed) |
| Budget Balance | Manageable deficit |
| Fiscal Pressure | Moderate and sustainable |
Enhanced economic activity boosted revenue collection, supporting infrastructure investment and service delivery. The strong tax revenue performance (90.2% of domestic revenue) demonstrates improved tax administration and economic formalization. The high domestic financing of development spending (65.9%) represents progress toward fiscal self-reliance, though continued revenue mobilization efforts and expenditure efficiency improvements remain critical for sustainable fiscal management.
Zanzibar's economic performance in 2025 showcased remarkable resilience and strong recovery, with tourism serving as the main growth engine amid stable inflation and improving fiscal and external conditions. The region achieved 6.8% GDP growth, demonstrating the economy's robust momentum despite global economic uncertainties.
The economic landscape was characterized by several positive developments: tourism arrivals reached 917,167 visitors, generating substantial foreign exchange earnings; inflation remained stable at 3.8%, supporting household purchasing power; the current account surplus expanded to USD 943.3 million; and government revenue collection exceeded targets, enabling critical infrastructure investments.
| Area | Assessment |
|---|---|
| Growth Momentum | Strong (6.8% GDP growth in 2025) |
| Inflation | Stable (3.8% headline inflation) |
| Tourism | Main growth engine (917,167 arrivals, ~30% of GDP) |
| External Sector | Improving surplus (USD 943.3M, +34% growth) |
| Fiscal Position | Stable (revenue 2.2% above target) |
| Financial Conditions | Supportive (expanding credit, stable rates) |
Zanzibar demonstrated exceptional resilience in 2025, led by tourism and services, achieving 6.8% GDP growth with stable macroeconomic conditions. However, sustaining this performance and achieving the 7.2% growth target for 2026 requires strategic diversification beyond tourism and cloves, significant infrastructure upgrades, and enhanced private sector development. Priority areas include developing sustainable agriculture and fisheries, promoting digital services, improving transport and energy infrastructure, and creating an enabling environment for non-tourism business growth. These initiatives will contribute to Tanzania's overall development goals while building a more resilient and diversified Zanzibar economy.