1. Inflation

• Overview: Inflation in Zanzibar, measured by the Consumer Price Index (CPI), reflects the cost of living for a basket of goods and services, including food, transport, utilities, and housing. A declining inflation rate supports household purchasing power and aligns with the Bank of Tanzania’s (BoT) medium-term target of 3–5% for the United Republic of Tanzania. Zanzibar’s inflation is influenced by local factors (e.g., food supply) and external pressures (e.g., global fuel prices).
• May 2025 Performance:
  • Headline Inflation: 4.2% in May 2025, down from 4.3% in April 2025 and significantly lower than 5.3% in May 2024, reflecting a 20.8% year-on-year decline.
  • Key Components:
    • Food Inflation: 3.9% in May 2025 (down from 4.1% in April 2025, 8.9% in May 2024). The decline is driven by improved food supply, with the National Food Reserve Agency (NFRA) holding 557,228 tonnes of maize in April 2025, up from 340,102 tonnes in April 2024, and releasing 29,834 tonnes to stabilize prices.
    • Non-Food Inflation: 4.6% in May 2025 (up from 4.4% in April 2025), driven by transport (e.g., +4.8% in January 2025) and utilities, reflecting global fuel price pressures and infrastructure demand.
    • Core Inflation: 3.8% in May 2025 (unchanged from April 2025), driven by clothing, housing, and education services, indicating stable demand for non-volatile items.
• Context and Analysis:
  • Food Inflation Decline: The drop from 8.9% (May 2024) to 3.9% (May 2025) reflects improved agricultural output and NFRA intervention. Favorable rainfall patterns in 2024/25 supported crop production (e.g., maize, rice), reducing food price volatility. However, Zanzibar’s reliance on imported food (e.g., USD 521.6 million total imports in January 2025,) exposes it to global price fluctuations.
  • Non-Food Inflation Rise: The slight increase to 4.6% reflects higher transport and utility costs, linked to global fuel prices and infrastructure projects (e.g., construction up 5.8% in 2024,). Zanzibar’s tourism-driven economy increases demand for transport services, pushing costs.
  • Core Inflation Stability: The stable 3.8% core inflation indicates consistent demand for services like housing and education, supported by tourism recovery (2,662,219 arrivals in 2024,) and construction growth.
  • Economic Drivers: The BoT’s monetary policy (6% Central Bank Rate) and fiscal discipline (e.g., revenue growth,) keep inflation within the 3–5% target. However, the Tanzanian shilling’s 2.6% depreciation in 2025 raises import costs, exerting upward pressure on non-food inflation.
• Implications:
  • Positive Impact: Declining headline inflation (4.2%) enhances purchasing power, supporting consumption in a tourism-driven economy (7.1% growth,). Food inflation’s drop to 3.9% aligns with stable food stocks.
  • Challenges: Rising non-food inflation (4.6%) and shilling depreciation risk eroding gains, particularly for import-dependent Zanzibar (USD 379.8 million imports, provided data). Global fuel price volatility and La Niña-related supply disruptions pose risks.
  • Outlook: Inflation is projected to stabilize around 3.4% in 2025, supported by prudent policies and food supply stability. Continued NFRA interventions and renewable energy investments (e.g., solar,) can mitigate non-food inflation pressures.

2. Government Budgetary Operations

• Overview: Zanzibar’s government budget reflects revenue mobilization (taxes, non-tax sources, grants) and expenditure (recurrent and development). The budget supports the Zanzibar Development Vision 2050, focusing on tourism, infrastructure, and social services, but persistent deficits require external and domestic financing.
• May 2025 Performance:
  • Revenue and Grants: TZS 109.2 billion collected in May 2025, up 11.2% from May 2024.
    • Tax Revenue: TZS 99.8 billion (91.4% share):
      • VAT and Excise Duties: TZS 42.9 billion
      • Income Tax: TZS 24.0 billion
      • Import Duties: TZS 19.8 billion
      • Other Taxes: TZS 13.1 billion
    • Non-Tax Revenue: TZS 9.4 billion (8.6% share), including fees and licenses.
  • Expenditure: TZS 129.4 billion, up 6.8% from May 2024.
    • Recurrent Spending: TZS 98.8 billion, with TZS 57.3 billion for wages and salaries.
    • Development Spending: TZS 30.6 billion, supporting infrastructure and social projects.
  • Budget Deficit: TZS 20.2 billion, financed through external (e.g., Chinese grants,) and domestic borrowing.
• Context and Analysis:
  • Revenue Growth: The 11.2% increase to TZS 109.2 billion aligns with January 2025’s TZS 115.6 billion (+5.2% from December 2024,). Tax revenue (91.4%) benefits from tourism-driven VAT and import duties, with 2,662,219 tourist arrivals in 2024 boosting collections (). Non-tax revenue (8.6%) reflects improved licensing, supported by reforms to ease business regulations.
  • Expenditure Trends: Recurrent spending (TZS 98.8 billion, 76.4% of total) prioritizes wages (TZS 57.3 billion), reflecting public sector employment (e.g., education, health). Development spending (TZS 30.6 billion, 23.6%) supports infrastructure (e.g., port rehabilitation,) and aligns with 5.8% construction growth.
  • Budget Deficit: The TZS 20.2 billion deficit (down from TZS 22.3 billion in January 2025,) reflects improved revenue but persistent spending pressures. Financing includes domestic bonds (15.29% yields) and external grants (e.g., TZS 185 billion from China for health,).
  • Economic Drivers: Tourism growth (7.1%,) and trade (7.1%,) drive revenue, while infrastructure investments (e.g., Zanzibar port,) increase spending. The 2024/25 budget (TZS 1.43 trillion revenue,) targets fiscal discipline but faces a TZS 190 billion annual deficit.
• Implications:
  • Strengths: Strong revenue growth (11.2%) supports fiscal stability, with tax revenue (91.4%) reflecting tourism and trade gains. Development spending (TZS 30.6 billion) aligns with Vision 2050 priorities.
  • Challenges: The TZS 20.2 billion deficit and high recurrent spending (76.4%) limit fiscal space. Reliance on external financing (e.g., Chinese grants,) and domestic borrowing (15.5% lending rates) increases debt servicing costs.
  • Outlook: Revenue is projected to grow with tourism (6%+ growth,) and trade reforms (e.g., AfCFTA,). Fiscal discipline and expenditure controls are needed to reduce the deficit, as recommended by the World Bank.

3. External Sector Performance

• Overview: Zanzibar’s external sector reflects trade in goods (e.g., cloves, seaweed) and services (e.g., tourism), with a persistent trade deficit due to high import dependence. Tourism and clove exports are key foreign exchange earners, but global price fluctuations and production challenges impact performance.
• May 2025 Performance:
  • Exports of Goods and Services: USD 172.7 million, down 3.9% from May 2024.
    • Clove: USD 55.5 million, down 10.2% year-on-year, due to lower production and global prices.
    • Seaweeds: USD 9.8 million, up 2.1%.
    • Manufactured Goods: USD 3.7 million, up 8.6%.
    • Fish & Marine: USD 4.1 million, up 4.3%.
  • Imports: USD 379.8 million, up 10.1% from May 2024.
    • Capital Goods: USD 166.0 million, for infrastructure and manufacturing.
    • Consumer Goods: USD 134.9 million, driven by tourism and household demand.
    • Intermediate Goods: USD 78.9 million, including fuel and raw materials.
  • Trade Deficit: USD 207.1 million (USD 379.8M imports – USD 172.7M exports), widened from January 2025’s USD 387.4 million.
• Context and Analysis:
  • Export Decline: The 3.9% drop to USD 172.7 million reflects clove export challenges (USD 55.5 million, -10.2%), due to production fluctuations (down from USD 46.8 million in January 2025,) and global price declines. Seaweed (+2.1%), manufactured goods (+8.6%), and fish (+4.3%) show resilience, supported by export zones and processing reforms. Tourism receipts, included in services, bolster exports (USD 3,910 million nationally,).
  • Import Growth: The 10.1% rise to USD 379.8 million aligns with January 2025’s USD 521.6 million (+4.5%,). Capital goods (USD 166.0 million) support construction (5.8% growth,) and manufacturing (7% in Zanzibar,). Consumer goods (USD 134.9 million) reflect tourism demand, while intermediate goods (USD 78.9 million) include fuel, impacted by global prices.
  • Trade Deficit: The USD 207.1 million deficit, though narrower than January 2025’s USD 387.4 million, reflects import dependence. Tourism and remittances (USD 589.1 million nationally,) offset some losses, supported by reserves (USD 5,136.6 million).
  • Economic Drivers: Tourism (7.1% growth,) and infrastructure (e.g., port upgrades,) drive imports, while clove production volatility and global demand weaken exports. AfCFTA and trade agreements (e.g., Tanzania-Mozambique,) support export growth.
• Implications:
  • Strengths: Growth in seaweed, manufactured goods, and fish exports diversifies earnings. Tourism receipts (55.1% of national service exports,) and reserves (4.2 months import cover) ensure stability.tanzaniainvest.com
  • Challenges: Clove export decline (-10.2%) and high import growth (10.1%) widen the trade deficit, exacerbated by shilling depreciation (2.6%, Document, Page 12). Import reliance (USD 379.8 million) risks external vulnerabilities.
  • Outlook: Export diversification (e.g., manufacturing,) and tourism growth (6%+ in 2025,) can narrow the deficit. Investments in agriculture (e.g., seaweed,) and renewable energy will reduce import dependence.

Additional Insights and Outlook

• Economic Context: Zanzibar’s economy grew 6.2% in 2024, driven by tourism (7.1%) and construction (5.8%), with 2025 projections over 6%. Inflation (4.2%) and revenue growth (TZS 109.2 billion) support stability, but the trade deficit (USD 207.1 million) and budget deficit (TZS 20.2 billion) pose challenges.
• Policy Support: The BoT’s 6% CBR and fiscal reforms (e.g., VAT efficiency,) stabilize inflation and revenue. Chinese grants (TZS 185 billion,) and World Bank support (CPF 2025-2029,) fund infrastructure, reducing deficit pressures.
• Risks: Shilling depreciation (2.6%, Document, Page 12), global price volatility, and climate shocks (e.g., La Niña,) threaten inflation and trade. Overreliance on tourism and cloves risks external shocks.
• Outlook: Zanzibar’s 2025 growth (6%+) will rely on tourism, manufacturing, and trade reforms (e.g., AfCFTA,). Diversifying exports and reducing import reliance (e.g., via agriculture,) are critical for sustainability.

Zanzibar Economic Performance - May 2025: Key Figures

Note: USD conversion based on exchange rate of ~TZS 2,698/USD.