Zanzibar's economy in 2026 presents a tale of divergence: a buoyant external sector driven by record tourism arrivals and exceptional clove export revenues, set against renewed domestic price pressures — particularly in food — and a sharp rise in headline inflation to 5.0% in April 2026. This compares unfavourably with the 4.3% recorded in the same month of 2025, signalling that price stability remains a challenge for the Isles.

On the fiscal front, Zanzibar's government delivered a strong revenue performance, exceeding its April 2026 monthly target by 35%. However, substantial development spending — accounting for 74% of total expenditure — produced an overall fiscal deficit of TZS 123.3 billion, fully financed through domestic borrowing. The external sector, anchored by tourism's dominance, posted a current account surplus of USD 842 million for the year ending April 2026, up 18.5% from the prior year.

In April 2026, Zanzibar's headline inflation reached 5.0% annually — a notable increase from 4.3% recorded in the same month of 2025. The primary driver was food inflation surging to 9.9%, unchanged from March 2026 but more than double the 4.7% registered a year earlier. This reflects both demand pressures in the local market and the impact of rising fuel costs on food supply chains and transport.

Conversely, non-food inflation eased sharply to just 1.1% from 4.4% in April 2025, with moderation particularly pronounced in the housing, water, electricity, gas and other fuels category. This divergence between food and non-food price trajectories is a structural feature of Zanzibar's inflation profile in 2026 and mirrors similar patterns seen across the EAC region.

Rising fuel prices are a key transmission channel for inflation in Zanzibar. Petroleum pump prices rose significantly from 2025 levels through early 2026, with the escalation of geopolitical tensions in the Middle East pushing up global crude prices. Petrol and diesel prices reached their highest levels of the period in early 2026, before moderating slightly. Kerosene — widely used by lower-income households for cooking and lighting — also saw sustained price increases, compounding welfare impacts.

Zanzibar's government revenue performance in April 2026 was exceptionally strong, with total domestic revenue and grants reaching TZS 249.2 billion — surpassing the monthly target by 35 percent. The outperformance was largely driven by substantial grant receipts of TZS 76.4 billion. Domestic revenue of TZS 172.8 billion was equivalent to 97.1% of its target, reflecting solid tax collection underpinned by robust tourism activity.

However, expenditure remained high at TZS 372.5 billion, with development spending comprising 74% of total outlays — reflecting the government's continued prioritisation of capital investment and infrastructure. This spending pattern resulted in an overall fiscal deficit of TZS 123.3 billion, fully financed through domestic borrowing, a structural feature of Zanzibar's fiscal architecture.

Zanzibar's external sector delivered a strong performance in the year ending April 2026, with the current account improving by 18.5% to record a surplus of USD 842 million. The improvement was driven primarily by the dominance of service receipts — mainly tourism — which accounted for 96% of total export earnings. Meanwhile, the goods account deteriorated, with the goods deficit widening to USD 598.9 million as imports grew faster than goods exports.

Tourism remains the engine of Zanzibar's external earnings. Tourist arrivals grew 21.7% to 944,056 visitors in the year ending April 2026, generating service receipts of USD 1,553.8 million — a 20.7% annual increase. Clove exports provided the standout performance in goods, with export values surging on the back of higher global prices (clove unit price rising to USD 6,778.9 per tonne from USD 4,829.9 a year earlier).