Economic Stability, Resilience, and Growth Momentum

By Amran Bhuzohera

Tanzania’s economy in 2025 continues to display strong resilience amid a complex post-election environment and global uncertainties. Data from the Bank of Tanzania (BoT) and National Bureau of Statistics (NBS) highlight a broadly stable macroeconomic landscape marked by low inflation, steady currency appreciation, manageable public debt, and rising foreign investment flows. The combination of policy discipline, export recovery, and domestic demand expansion positions Tanzania as one of East Africa’s most stable economies heading into 2026.

1. Inflation: Controlled and Predictable

Headline inflation remained within the 3–5% target range, rising slightly to 3.5% in October 2025 from 3.4% the previous month. The modest uptick reflects higher food prices (7.4%) partially offset by declining fuel and energy costs (–1.4% monthly).

Key takeaway: Inflation stability preserves purchasing power and encourages investor confidence. Food inflation remains a challenge, particularly for low-income households, but easing monthly trends suggest temporary relief.

2. Exchange Rate and External Sector: Strong Shilling, Narrowing Deficit

The Tanzanian shilling appreciated 9.4% year-on-year to an average of TZS 2,471.69/USD in September 2025, reversing the 10.1% depreciation of 2024. This reflects robust export performance—especially gold, cashews, and cereals—and increasing tourism earnings.

Key takeaway: Currency strength has improved debt servicing capacity and dampened imported inflation, anchoring macroeconomic stability.

3. Public Debt: Sustainable and Development-Focused

Tanzania’s total national debt stood at TZS 127.47 trillion (USD 50.77 billion) as of September 2025, with external debt accounting for 70.6%. The debt composition remains largely concessional and directed toward infrastructure, energy, and social services.

Key takeaway: Debt levels are sustainable and aligned with regional thresholds. An appreciating shilling reduces repayment costs for USD-denominated debt, though diversification of borrowing remains essential.

4. Fiscal and Monetary Position: Discipline Anchored in Stability

Fiscal operations show a TZS 618.5 billion deficit, financed mainly through domestic bonds and concessional loans. Revenue performance reached 87.2% of target while expenditure execution stood at 71.9%. The BoT policy rate remained at 6.0%, supporting 12% private sector credit growth.

Key takeaway: Fiscal discipline, supported by strong domestic debt markets, has preserved macroeconomic credibility without crowding out private credit.

5. Sectoral Outlook: Growth Catalysts Emerging

The 2025 outlook projects GDP growth between 5.5% and 6.5%, supported by agriculture, tourism, and manufacturing. Infrastructure investment and digital transformation remain key growth levers under the FYDP III framework.

Key takeaway: Structural investments in transport, power, and agriculture will sustain growth momentum into 2026, while diversification remains essential to shield against external shocks.

6. Zanzibar: Parallel Progress

Zanzibar’s economy mirrors mainland stability, posting 3.5% inflation and a USD 836.6 million current account surplus (+34.7%), driven by tourism (+28.2% arrivals). Fiscal discipline and service exports remain key strengths.

Conclusion

Tanzania’s 2025 economic story is one of stability amid transition. Inflation remains low, the shilling is strong, and debt sustainability is intact. However, persistent food inflation and USD exposure warrant close monitoring. Continued structural reforms, SME incentives, and agricultural modernization under the FYDP III will determine whether Tanzania sustains its 6%+ growth trajectory and advances toward upper-middle-income status by 2030.

Authored by Amran Bhuzohera, this paper presents a timely analysis of the economic, policy, and social implications of election-related disruptions in Tanzania. It explores how political instability and electoral uncertainty influence investment confidence, fiscal stability, business continuity, and macroeconomic performance.

Drawing from historical data covering elections between 1995 and 2020, the study highlights the recurring link between election periods and economic slowdowns, where investor hesitation, fiscal reallocations, and heightened political tension create short-term volatility across key sectors.

Key Findings

• GDP growth deceleration: Average national growth declines by 1.5–2.2 percentage points during election years, driven by disruptions in trade, infrastructure projects, and tourism.
• Investment slowdown: Private investment drops by 8–12% on average in the six months preceding elections, with foreign investors adopting a wait-and-see stance.
• Fiscal imbalance: Increased government expenditure on administrative and security functions leads to temporary budget reallocation, limiting funds for development projects.
• Inflationary pressure: Election-related uncertainty leads to short-term inflation spikes of 1.5–2%, particularly in food and transport prices.
• Policy discontinuity: Changes in leadership priorities often delay or reverse major public-private initiatives, reducing the predictability of long-term economic programs.

Broader Implications

The paper argues that predictable political environments and transparent electoral processes are vital to sustaining Tanzania’s economic transformation agenda under FYDP III and Vision 2050. Political calm fosters confidence among local and foreign investors, while election disruptions can erode progress in industrialization, SME growth, and infrastructure modernization.

Policy Recommendations

• Strengthen institutional safeguards to ensure fiscal discipline and continuity of economic programs before, during, and after elections.
• Promote transparent electoral management through independent oversight and civic education to minimize disruptions.
• Enhance public-private dialogue mechanisms to maintain investor confidence amid political transitions.
• Develop contingency macroeconomic frameworks to manage volatility during election cycles.
• Advance regional policy coordination under the EAC framework to mitigate cross-border effects of political disruptions.

Ultimately, the study underscores that stable governance and credible elections are as critical to economic performance as fiscal and industrial reforms. A well-managed democratic process is not only a political necessity but an economic imperative for sustainable development in Tanzania.

📘 Read the Full Discussion Paper:
“Impacts of Election Disruptions and Tanzania: Economic and Policy Implications”
Authored by Amran Bhuzohera
Published by TICGL | Economic Research Centre
🌐 www.ticgl.com

Strong Growth, Low Inflation, but Trade and Budget Deficits Persist

Zanzibar’s economy showed resilience in 2024, with real GDP growth rising to 6.8%, up from 5.1% in 2023, driven primarily by tourism and infrastructure investments like the SGR and port upgrades. Tourist arrivals surged to 2.2 million in 2025, supporting the services sector, while FDI jumped by 28.3% to USD 1.72 billion, fueling construction. Inflation remained stable at 3.4% in June 2025, down from 6.1% a year earlier, well within the BoT's 3–5% target. On the fiscal front, domestic revenue reached TZS 874.9 billion, covering 95.6% of public income, though a TZS 248.5 billion budget deficit persists. In trade, Zanzibar posted a goods trade deficit of USD 309.2 million, as exports fell 11.9% (led by a 27.2% decline in cloves) while imports rose 8.4%. Meanwhile, the financial sector expanded with credit to the private sector growing by 23.5% and bank deposits increasing by 12.1%, signaling deepening financial inclusion despite high lending rates (15.12%).

1. Real Sector Performance (GDP Growth)

The real sector encompasses economic activities producing goods and services, with GDP growth reflecting Zanzibar’s economic vitality.

• Real GDP Growth (2024):
  • Value: 6.8%, up from 5.1% in 2023.
  • Context: This aligns with earlier reports, such as a 7% growth in January–September 2024 and 7.2% in Q4 2024, driven by tourism and trade. The African Development Bank projects Zanzibar’s growth to exceed 6% in 2025, supported by tourism, construction, and real estate.
  • Drivers:
    • Industry Sector: Construction and manufacturing led growth, fueled by infrastructure projects like the Standard Gauge Railway (SGR) and port expansions. Construction benefits from public-private partnerships (PPPs) and foreign direct investment (FDI), with Tanzania’s FDI rising 28.3% to USD 1.72 billion in 2024.
    • Services Sector: Accommodation and food services, tied to tourism, were major contributors. Tourist arrivals reached 2,193,322 in 2025, up 10% from 1,994,242 in 2024, boosting hospitality. The Tanzania National Business Council projects tourism’s GDP contribution to reach 19.5% by 2025/26.
  • Implications: The 6.8% growth reflects Zanzibar’s economic resilience, driven by tourism and infrastructure. However, reliance on tourism (10% of GDP) and construction makes the economy vulnerable to external shocks, such as global tourism fluctuations or commodity price volatility. Diversification into manufacturing and agriculture, as outlined in Zanzibar’s USD 2 billion plan, is critical.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania grew at 5.6% in 2024, projected at 6% in 2025, driven by agriculture, finance, and construction. Zanzibar’s higher growth (6.8%) reflects its tourism-led economy, but its smaller economic base (contributing ~3% to Tanzania’s GDP) limits its overall impact.

2. Inflation Trends

Inflation measures the rate of price increases, affecting purchasing power and economic stability.

• Headline Inflation:
  • 12-Month Average (June 2025): 3.5%.
  • June 2025 (Monthly): 3.4%, down from 6.1% in June 2024.
  • Context: Inflation eased from 5.1% in 2024 and 6.9% in 2023, with February 2025 at 4.8%. The National Bureau of Statistics reported 3.3% inflation in June 2025, driven by food price increases (e.g., finger millet at 7.0%). Zanzibar’s inflation remains below the 5% medium-term target set by the Bank of Tanzania (BoT) and aligns with East African Community (EAC) criteria.
  • Drivers:
    • Stabilized Food Prices: Declining food inflation (5.3% in April 2025) reflects improved agricultural output and stable global commodity prices.
    • Controlled Non-Food Prices: Transport costs moderated due to stable fuel prices, with energy inflation at 7.3% in April 2025, down from 9.3% in 2024.
  • Implications: Low inflation (3.4%) supports consumer purchasing power and aligns with the BoT’s 3%–5% target under its 2025–2030 Strategic Plan. However, food price volatility (e.g., finger millet) poses risks, particularly for low-income households, given Zanzibar’s 26.4% poverty rate. Continued monetary policy prudence (6% Central Bank Rate) is essential.
• Comparison with Mainland Tanzania:
  • Mainland Tanzania’s inflation was 3.2% in May 2025 and 3.1% in January 2025, slightly lower than Zanzibar’s 3.4%. Zanzibar’s higher inflation reflects its reliance on imported goods and tourism-driven demand.

3. Government Budgetary Operations (July 2024 – May 2025)

The government budget reflects fiscal policy, balancing revenues, grants, and expenditures to fund public services and development.

• Revenues and Grants:
  • Total: TZS 914.7 billion.
    • Domestic Revenue: TZS 874.9 billion (95.6% of total).
      • Tax Revenue: TZS 796.6 billion (86.9% of total).
      • Non-Tax Revenue: TZS 78.3 billion (8.6% of total).
    • Grants: TZS 39.8 billion (4.4% of total).
  • Context: Strong revenue performance aligns with Mainland Tanzania’s TZS 2,339.7 billion tax collection in May 2025, 4.1% above target. Zanzibar’s tax revenue reflects improved administration and compliance, supported by digital systems like the Tanzania Instant Payment System (TIPS). Grants, including TZS 185 billion from China for health and economic cooperation, bolster fiscal space.
  • Implications: High domestic revenue (95.6%) reduces grant dependency, but low grant inflows (4.4%) limit funding for development projects. Enhanced tax mobilization, as per MKUMBI II reforms, is critical.
• Expenditures:
  • Total: TZS 1,123.4 billion.
    • Recurrent Expenditure: TZS 744.7 billion (66.3% of total).
    • Development Expenditure: TZS 378.7 billion (33.7% of total).
  • Context: Expenditure aligns with revenue, reflecting fiscal prudence, as noted in the BoT’s mid-year review. Development spending supports tourism (TZS 359.9 billion budget for 2025/26) and infrastructure (e.g., Dodoma Transport Project). Recurrent spending covers wages and public services, critical for Zanzibar’s 9.3% unemployment rate.
  • Implications: The high recurrent share (66.3%) limits development funding, necessitating expenditure rationalization to meet Vision 2050 goals (e.g., 90% electricity access).
• Budget Deficit:
  • Deficit (Before Grants): TZS 248.5 billion.
  • Financing: Covered by domestic borrowing (e.g., TZS 625.5 billion mobilized in April 2025, including TZS 421.7 billion in Treasury bonds) and grants.
  • Context: Public debt remains sustainable with a moderate risk of distress, per the IMF’s 2024 Debt Sustainability Analysis. Zanzibar’s deficit aligns with Mainland Tanzania’s TZS 270.2 billion deficit in May 2025.
  • Implications: Domestic borrowing supports fiscal needs but increases debt servicing costs (TZS 640 billion in April 2025). Grants and FDI (USD 1.72 billion in 2024) are vital to reduce borrowing reliance.

4. Trade Performance (Goods Only)

Trade performance reflects Zanzibar’s external sector, focusing on goods exports and imports, with services (e.g., tourism) covered separately.

• Total Exports (Goods):
  • Value: USD 150.3 million, down from USD 170.6 million in 2024 (-11.9%).
  • Composition:
    • Cloves: USD 66.4 million (44.2% of exports), down from USD 91.2 million (-27.2%).
    • Seafood & Other Goods: USD 60.4 million (40.2% of exports).
    • Manufactured Goods: USD 23.5 million (15.6% of exports).
  • Context: The decline in clove exports reflects global market downturns, as noted in earlier reports. Seafood and manufactured goods growth aligns with diversification efforts under Zanzibar’s USD 2 billion plan. Total Tanzania exports (including Mainland) reached USD 16.1 billion in 2024, led by gold and tourism.
  • Implications: The 11.9% export drop, particularly in cloves, strains foreign exchange earnings, given cloves’ 90% production on Pemba. Diversification into seafood and manufacturing is promising but requires market expansion.
• Total Imports (Goods):
  • Value: USD 459.5 million, up from USD 423.7 million in 2024 (+8.4%).
  • Composition:
    • Capital Goods: USD 222.5 million (48.4% of imports).
    • Intermediate Goods: USD 141.4 million (30.8% of imports).
    • Consumer Goods: USD 95.6 million (20.8% of imports).
  • Context: Import growth reflects infrastructure projects (e.g., SGR, port expansions) and consumer demand, consistent with Mainland Tanzania’s capital goods imports. Zanzibar’s reliance on imported staples and petroleum products persists.
  • Implications: Rising imports, driven by capital goods, support industrialization but widen the trade deficit, straining reserves (USD 5,307.7 million, 4.3 months of import cover).
• Trade Deficit:
  • Value: USD 309.2 million, widened from USD 253.1 million in 2024 (imports USD 423.7 million – exports USD 170.6 million).
  • Context: The deficit reflects falling clove exports and rising capital goods imports, consistent with Tanzania’s overall current account deficit of USD 2,117.6 million.
  • Implications: The widened deficit pressures the Tanzanian Shilling (8% depreciation in 2023) and reserves. Export promotion (e.g., seafood, manufactured goods) and tourism (USD 3,934.5 million in receipts) are critical to offset deficits.

5. Financial Sector Performance

The financial sector supports economic activity through credit provision and deposit mobilization, critical for private sector growth.

• Credit to Private Sector (June 2025):
  • Value: TZS 747.7 billion, up 23.5% from June 2024.
  • Sectors:
    • Trade: 27.8% (TZS 207.9 billion).
    • Building & Construction: 20.2% (TZS 151.0 billion).
    • Personal Loans: 13.8% (TZS 103.2 billion).
    • Transport & Communication: 10.7% (TZS 80.0 billion).
  • Context: The 23.5% growth exceeds Mainland Tanzania’s 12.8% private sector credit growth in January 2025, driven by agriculture and SMEs. Zanzibar’s credit growth reflects tourism and construction demand, supported by the BoT’s 6% Central Bank Rate and TIPS (453.7 million transactions in 2024).
  • Implications: Robust credit growth (23.5%) supports SMEs and infrastructure, aligning with financial inclusion goals (87% adult target by 2030). However, the high trade and construction share risks overexposure if tourism slows.
• Deposit Mobilization:
  • Value: TZS 1,185.4 billion, up 12.1% from TZS 1,057.6 billion in June 2024.
  • Context: Growth aligns with Tanzania’s banking sector stability, with a 3.6% non-performing loan ratio in Q1 2025, below the 5% threshold. Mobile money transactions (TZS 198,859 billion in 2024) boost deposits.
  • Implications: Strong deposit growth (12.1%) reflects financial deepening, but high lending rates (15.12% in January 2025) may constrain borrowing. Digital platforms like TIPS enhance inclusion, supporting Vision 2050.

Summary Table: Key Economic Indicators for Zanzibar (Year Ending June 2025)

Key Takeaways and Policy Implications

1. Robust GDP Growth:
   • Zanzibar’s 6.8% growth in 2024, driven by tourism and construction, outpaces Mainland Tanzania (5.6%). Tourism (2.2 million arrivals) and infrastructure (e.g., SGR) are key drivers, but diversification into manufacturing and agriculture is needed to reduce tourism dependency (10% of GDP).
   • Policy: Implement Zanzibar’s USD 2 billion diversification plan to boost seafood and manufactured exports, aligning with Vision 2050.
2. Stable Inflation:
   • Inflation at 3.4% (June 2025) supports purchasing power, driven by stable food and fuel prices. However, food price volatility (e.g., 7.0% for finger millet) risks impacting the 26.4% poverty rate.
   • Policy: Enhance agricultural productivity and supply chain resilience to mitigate food price shocks, as per the Second Agriculture Sector Development Program.
3. Fiscal Prudence:
   • Strong domestic revenue (TZS 874.9 billion) reduces grant reliance, but the TZS 248.5 billion deficit requires sustained borrowing and grants. Development spending (33.7%) supports growth but is constrained by recurrent costs (66.3%).
   • Policy: Rationalize recurrent expenditure and leverage FDI (USD 1.72 billion in 2024) to fund infrastructure and tourism.
4. Trade Challenges:
   • The USD 309.2 million trade deficit, driven by a 27.2% drop in clove exports and 8.4% import rise, pressures reserves. Tourism receipts (USD 3,934.5 million) offset some losses, but goods exports need boosting.
   • Policy: Promote clove market recovery and expand seafood and manufacturing exports through trade agreements (e.g., AfCFTA).
5. Financial Sector Strength:
   • Credit growth (23.5%) and deposit mobilization (12.1%) reflect financial deepening, supported by digital payments (TIPS) and a stable banking sector (3.6% NPL ratio). High lending rates (15.12%) and trade/construction exposure pose risks.
   • Policy: Reduce lending rates and enhance SME financing, as per the BoT’s 2025–2030 plan, to sustain inclusion and growth.
6. Economic Context:
   • Regional Role: Zanzibar’s tourism and trade hub status supports growth, but its small GDP share (~3% of Tanzania’s USD 105.1 billion in 2022) limits impact.
   • Risks: Global commodity price volatility, tourism seasonality, and shilling depreciation (8% in 2023) pose challenges.
   • Opportunities: Vision 2050, MKUMBI II reforms, and digital financial inclusion (87% target) offer pathways to a USD 1 trillion economy.